EX-99.2 4 l34172aexv99w2.htm EX-99.2 EX-99.2
Exhibit 99.2
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
On August 14, 2008, Transcat, Inc. (“Transcat”) acquired Westcon, Inc. (“Westcon”) pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) with Westcon and its sole shareholder.
Under the terms of the Merger Agreement, Transcat paid an aggregate purchase price of approximately $6.9 million, which was paid in a combination of the issuance of 150,000 shares of Transcat common stock valued at approximately $1.1 million and approximately $5.8 million in cash. An additional contingent payment of up to $1.4 million is subject to holdback restrictions and is intended to secure the obligations of Westcon and the sole stockholder for post-closing adjustments, reimbursement and indemnification under the terms of the Merger Agreement. This contingent payment is expected to be recorded as additional purchase price at the time the payment is certain. A portion of the cash purchase price, aggregating $0.5 million, was distributed to satisfy certain debt obligations of Westcon, with the remainder being paid to the sole stockholder.
In addition, Transcat and the sole stockholder entered into an Earn Out Agreement dated as of the closing of the merger. This agreement provides that the sole stockholder be entitled to certain contingent earn out payments subject to Westcon achieving certain post-closing targets. These potential future payments are expected to be recorded as compensation expense.
The following is a summary of the preliminary purchase price allocation (in thousands):
         
Intangible Asset
   $ 1,206  
Goodwill
     4,498  
 
      
 
     5,704  
Plus: Current Assets, net
     1,675  
Non-Current Assets
     274  
Less: Current Liabilities
     (639 )
Non-Current Liabilities
     (86 )
 
      
Total Purchase Price
   $ 6,928  
 
      
The unaudited pro forma combined balance sheet as of June 28, 2008 was prepared as if the acquisition had occurred on that date and combines the historical consolidated balance sheets of Transcat as of June 28, 2008 and Westcon as of June 30, 2008. The unaudited pro forma combined statements of operations were prepared as if the acquisition had occurred on April 1, 2007. The unaudited pro forma combined statement of operations for the fiscal year ended March 29, 2008 combines the historical consolidated statement of operations of Transcat for the twelve months ended March 29, 2008 and the historical statement of operations of Westcon for the twelve months ended June 30, 2008. The unaudited pro forma combined statement of operations for the three months ended June 28, 2008 combines the historical consolidated statements of operations of Transcat for the three months ended June 28, 2008 and the historical statement of operations of Westcon for the three months ended June 30, 2008.
The unaudited pro forma combined financial statements have been prepared for informational purposes only, to show the effect of the combination of Transcat and Westcon on a historical basis. These financial statements do not purport to be indicative of the financial position or results of operations that would have actually occurred had the business combination been in effect at those dates, nor do they project the results of operations or financial position for any future period or date. The unaudited pro forma combined financial statements do not reflect any adjustments for non-recurring items or anticipated synergies resulting from the acquisition.
These statements and accompanying notes should be read in conjunction with, and are qualified by, the consolidated financial statements of Transcat contained in the Transcat Annual Report on Form 10-K and Quarterly Report on Form 10-Q as filed with the Securities and Exchange Commission on June 26, 2008 and August 11, 2008, respectively, and the financial statements of Westcon included herein.

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UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 28, 2008
(Amounts in thousands)
                                         
    Historical     Historical     Pro Forma             Pro Forma  
    Transcat     Westcon     Adjustments             Combined  
 
                                        
ASSETS
                                        
Current Assets:
                                        
Cash
   $ 130     $ 55     $               $ 185  
Accounts Receivable, net
     7,501       1,015                       8,516  
Other Receivables
     535       –                       535  
Inventory, net
     6,557       570                       7,127  
Prepaid Expenses & Other
     824       13                       837  
Deferred Tax Asset
     299       57                       356  
 
                                
Total Current Assets
     15,846       1,710       –               17,556  
Property and Equipment, net
     3,154       280                       3,434  
Goodwill
     2,967       –       4,498       (A )     7,465  
Intangible Asset
     –       –       1,206       (A )     1,206  
Deferred Tax Asset
     1,386       –                       1,386  
Other Assets
     343       4                       347  
 
                                
Total Assets
   $ 23,696     $ 1,994     $ 5,704             $ 31,394  
 
                                
 
                                        
LIABILITIES & EQUITY
                                        
Current Liabilities
                                       
Short Term Borrowings
   $ –     $ 131     $ (131 )     (A )   $ –  
Accounts Payable
     6,085       593                       6,678  
Accrued Compensation and Other Liabilities
     1,410       121       1,133       (A )     2,664  
Income Taxes Payable
     144       137                       281  
Current Portion of Long Term Debt
     –       39       (39 )     (A )     –  
 
                                
Total Current Liabilities
     7,639       1,021       963               9,623  
Long Term Debt
     –       164       4,369       (A )     4,533  
Deferred Tax Liability
     –       68                       68  
Other Liabilities
     471       –                       471  
 
                                
Total Liabilities
     8,110       1,253       5,332               14,695  
 
                                
 
                                        
Shareholder’s Equity:
                                        
Common Stock
     3,730       5       70       (A)/ (B)     3,805  
Capital in Excess of Par Value
     6,875       –       1,038       (A )     7,913  
Accumulated Other Comprehensive Income
     444                               444  
Retained Earnings (Deficit)
     5,525       736       (736 )     (B )     5,525  
Less: Treasury Stock, at cost
     (988 )                             (988 )
 
                                
Total Shareholder’s Equity
     15,586       741       372               16,699  
 
                                
Total Liabilities and Shareholder’s Equity
   $ 23,696     $ 1,994     $ 5,704             $ 31,394  
 
                                
See accompanying notes to unaudited pro forma combined financial statements.

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UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED MARCH 29, 2008
(Amounts in thousands, except per share amounts)
                                         
    Historical     Historical     Pro Forma             Pro Forma  
    Transcat     Westcon     Adjustments             Combined  
 
                                        
Product Sales
   $ 47,539     $ 7,906     $ (169 )     (A )   $ 55,276  
Service Revenue
     22,914       1,697                       24,611  
 
                                
Net Revenue
     70,453       9,603       (169 )             79,887  
 
                                
 
                                        
Cost of Products Sold
     34,334       6,086       (144 )     (A )     40,276  
Cost of Services Sold
     17,578       1,207                       18,785  
 
                                
Total Cost of Products and Services Sold
     51,912       7,293       (144 )             59,061  
 
                                
 
                                        
Gross Profit
     18,541       2,310       (25 )             20,826  
 
                                
 
                                        
Selling, Marketing and Warehouse Expenses
     9,056       709                       9,765  
Administrative Expenses
     6,202       913       184       (B )     7,299  
 
                                
Total Operating Expenses
     15,258       1,622       184               17,064  
 
                                
 
                                        
Operating Income
     3,283       688       (209 )             3,762  
 
                                
 
                                        
Interest Expense
     101       32       333       (C )     466  
Other Expense, net
     437       (3 )                     434  
 
                                
Total Other Expense
     538       29       333               900  
 
                                
 
                                        
Income Before Income Taxes
     2,745       659       (542 )             2,862  
Provision for Income Taxes
     382       264       (150 )     (D )     496  
 
                                
 
                                        
Net Income
   $ 2,363     $ 395     $ (392 )           $ 2,366  
 
                                
 
                                        
Basic Earnings Per Share
   $ 0.33                             $ 0.32  
Average Shares Outstanding
     7,132               150       (E )     7,282  
Diluted Earnings Per Share
   $ 0.32                             $ 0.32  
Average Shares Outstanding
     7,272               150       (E )     7,422  
See accompanying notes to unaudited pro forma combined financial statements.

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UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 28, 2008
(In thousands, except per share amounts)
                                         
    Historical     Historical     Pro Forma             Pro Forma  
    Transcat     Westcon     Adjustments             Combined  
 
                                        
Product Sales
   $ 12,311     $ 1,654     $ (44 )     (A )   $ 13,921  
Service Revenue
     5,542       436                       5,978  
 
                                
Net Revenue
     17,853       2,090       (44 )             19,899  
 
                                
 
                                        
Cost of Products Sold
     8,949       1,389       (38 )     (A )     10,300  
Cost of Services Sold
     4,379       307                       4,686  
 
                                
Total Cost of Products and Services Sold
     13,328       1,696       (38 )             14,986  
 
                                
 
                                        
Gross Profit
     4,525       394       (6 )             4,913  
 
                                
 
                                        
Selling, Marketing and Warehouse Expenses
     2,595       152                       2,747  
Administrative Expenses
     1,542       317       51       (B )     1,910  
 
                                
Total Operating Expenses
     4,137       469       51               4,657  
 
                                
 
                                        
Operating Income
     388       (75 )     (57 )             256  
 
                                
 
                                        
Interest Expense
     (1 )     4       54       (C )     57  
Other Expense, net
     8       (1 )                     7  
 
                                
Total Other Expense
     7       3       54               64  
 
                                
 
                                        
Income Before Income Taxes
     381       (78 )     (111 )             192  
Provision for (Benefit from) Income Taxes
     153       (31 )     (23 )     (D )     99  
 
                                
 
                                        
Net Income (Loss)
   $ 228     $ (47 )   $ (88 )           $ 93  
 
                                
 
                                        
Basic Earnings Per Share
   $ 0.03                             $ 0.01  
Average Shares Outstanding
     7,186               150       (E )     7,336  
Diluted Earnings Per Share
   $ 0.03                             $ 0.01  
Average Shares Outstanding
     7,399               150       (E )     7,549  
See accompanying notes to unaudited pro forma combined financial statements.

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NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Pro Forma Adjustments:
The following pro forma adjustments are included in the unaudited pro forma combined balance sheet:
(A)   To reflect activity related to the acquisition and the allocation of purchase price:
  •   Goodwill and definite lived intangibles, namely customer base, of $4.5 million and $1.2 million, respectively.
 
  •   Repayment of Westcon debt by Transcat of $0.3 million, based on balances outstanding at June 30, 2008. Actual Westcon debt paid at closing on August 14, 2008 totaled $0.5 million.
 
  •   Additional purchase price and acquisition costs related to the merger of $1.0 million and $0.1 million, respectively, and are included in accrued compensation and other liabilities. Payment of the additional purchase price is to be made in November 2008.
 
  •   Proceeds from borrowings by Transcat of $4.5 million, based on balance sheet amounts outstanding at June 30, 2008. Actual borrowings at closing on August 14, 2008 totaled $4.7 million.
 
  •   The issuance of 150,000 shares of Transcat common stock valued at approximately $1.1 million based on the closing price per share of Transcat common stock of $7.42 on August 13, 2008.
(B)   To record the elimination of the historical stockholders’ equity of Westcon.
The following pro forma adjustments are included in the unaudited pro forma combined statement of operations:
(A)   To eliminate product sales and the cost of products sold by Transcat to Westcon.
 
(B)   To reflect amortization of definite lived intangible assets acquired over the estimated useful life of 10 years.
 
(C)   To reflect interest expense based on Transcat’s indebtedness incurred to finance the acquisition at annual interest rates ranging from 4.6% to 4.8% for the three month period ended June 28, 2008 and 4.8% to 7.8% for the fiscal year ended March 29, 2008. These rates are based on the prime rate during the respective period, adjusted by Transcat’s current commitment adjustment of the prime rate less .45%. Transcat believes the future interest rate on this indebtedness will be significantly lower than the pro forma amounts based on the current interest rate environment.
 
(D)   To record the estimated tax impact of the pro forma adjustments at the blended statutory rates in effect for the respective period reported, adjusted for the reduction in a deferred tax valuation allowance during the fiscal year ended March 29, 2008 and permanent differences in the periods reported.
 
(E)   To reflect the issuance of 150,000 shares of Transcat common stock at closing.

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