GENERAL (Policy)

9 Months Ended

Dec. 26, 2015

GENERAL [Abstract]

Description of Business

Description of Business: Transcat, Inc. (“Transcat” or the “Company”) is a leading provider of accredited calibration and compliance services and distributor of professional grade handheld test, measurement and control instrumentation. The Company is focused on providing services and products to highly regulated industries, particularly the life science industry, which includes companies in the pharmaceutical, medical device and biotechnology industries. Additional industries served include industrial manufacturing; energy and utilities, including oil and gas; chemical manufacturing and other industries that require accuracy in their processes and confirmation of the capabilities of their equipment.

Basis of Presentation

Basis of Presentation: Transcat's unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8-03 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 what the results will be 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 28, 2015 (“fiscal year 2015”) contained in the Company's 2015 Annual Report on Form 10-K filed with the SEC.

Fair Value of Financial Instruments

Fair Value of Financial Instruments: Transcat has determined the fair value of debt and other financial instruments using a valuation hierarchy. The hierarchy, which prioritizes the inputs used in measuring fair value, consists of three levels. Level 1 uses observable inputs such as quoted prices in active markets; Level 2 uses inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, which is defined as unobservable inputs in which little or no market data exists, requires the Company to develop its own assumptions. The carrying amount of debt on the Consolidated Balance Sheets approximates fair value due to variable interest rate pricing, and the carrying amounts for cash, accounts receivable and accounts payable approximate fair value due to their short-term nature. Investment assets, which fund the Company's non-qualified deferred compensation plan, consist of mutual funds and are valued based on Level 1 inputs. At December 26, 2015 and March 28, 2015, investment assets totaled $0.8 million and $0.9 million, respectively, and are included as a component of other assets (non-current) on the Consolidated Balance Sheets.

Stock-Based Compensation

Stock-Based Compensation: The Company measures the cost of services received in exchange for all equity awards granted, including stock options and restricted stock units, based on the fair market value of the award as of the grant date. The Company records compensation cost related to unvested equity awards by recognizing, on a straight-line basis, the unamortized grant date fair value over the remaining service period of each award. Excess tax benefits from the exercise of equity awards are presented in the Consolidated Statements of Cash Flows as a financing activity. Excess tax benefits are realized benefits from tax deductions for exercised awards in excess of the deferred tax asset attributable to stock-based compensation costs for such awards. The Company did not capitalize any stock-based compensation costs as part of an asset. The Company estimates forfeiture rates based on its historical experience. During the first nine months of the fiscal year ending March 26, 2016 (“fiscal year 2016”) and the first nine months of fiscal year 2015, the Company recorded non-cash stock-based compensation cost of $0.3 million and $0.5 million, respectively, in the Consolidated Statements of Income.

Foreign Currency Translation and Transactions

Foreign Currency Translation and Transactions: The accounts of Transcat Canada Inc., a wholly-owned subsidiary of the Company, are maintained in the local currency and have been translated to U.S. dollars. Accordingly, the amounts representing assets and liabilities have been translated at the period-end rates of exchange and related revenue and expense accounts have been translated at an average rate of exchange during the period. Gains and losses arising from translation of Transcat Canada Inc.'s financial statements into U.S. dollars are recorded directly to the accumulated other comprehensive income (loss) component of shareholders' equity.

Transcat records foreign currency gains and losses on Canadian business transactions. The net foreign currency loss was less than $0.1 million in the first nine months of fiscal year 2016 and $0.1 million in the first nine months of fiscal year 2015. The Company continually utilizes short-term foreign exchange forward contracts to reduce the risk that its earnings will be adversely affected by changes in currency exchange rates. The Company does not apply hedge accounting and therefore the net change in the fair value of the contracts, which totaled a gain of $0.4 million during the first nine months of fiscal years 2016 and 2015, was recognized as a component of other expense in the Consolidated Statements of Income. The change in the fair value of the contracts is offset by the change in fair value on the underlying accounts receivables denominated in Canadian dollars being hedged. On December 26, 2015, the Company had a foreign exchange contract outstanding in the notional amount of $5.0 million. The Company does not use hedging arrangements for speculative purposes.

Earnings Per Share

Earnings Per Share: Basic earnings per share of common stock are computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share of common stock reflect the assumed conversion of stock options and unvested restricted stock units using the treasury stock method in periods in which they have a dilutive effect. In computing the per share effect of assumed conversion, funds that would have been received from the exercise of options and unvested restricted stock units and the related tax benefits are considered to have been used to purchase shares of common stock at the average market prices during the period, and the resulting net additional shares of common stock are included in the calculation of average shares of common stock outstanding.

For the third quarter and first nine months of fiscal year 2016, the net additional common stock equivalents had no per share effect and a $.01 per share effect on the calculation of diluted earnings per share, respectively. For both the third quarter and first nine months of fiscal year 2015, the net additional common stock equivalents had a $.01 per share effect on the calculation of diluted earnings per share. The average shares outstanding used to compute basic and diluted earnings per share are as follows:

	Third Quarter Ended				Nine Months Ended
	December 26,		December 27,		December 26,		December 27,
	2015		2014		2015		2014
Average Shares Outstanding – Basic		6,900		6,823		6,878		6,788
Effect of Dilutive Common Stock Equivalents		237		258		256		273
Average Shares Outstanding – Diluted		7,137		7,081		7,134		7,061
Anti-dilutive Common Stock Equivalents		-		-		-		-

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements: In November 2015, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2015-017 to Topic 740, Income Taxes. This ASU requires entities to record all deferred tax liabilities and assets as noncurrent in the Consolidated Balance Sheet. This ASU is effective for fiscal years beginning after December 15, 2017 and may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. Early adoption of this ASU is permitted. The Company does not expect adoption of this ASU to have a material impact on its Consolidated Financial Statements.

Subsequent Events

Subsequent Events: On December 30, 2015, the Company entered into Amendment 2 to its secured Credit Agreement, as amended by Amendment 1, (“Credit Agreement”), to amend borrowings available under the Credit Agreement for acquisitions to $17.0 million in the fiscal year ending March 26, 2016 and $15.0 million for each fiscal year ending thereafter.

Effective December 31, 2015, the Company acquired substantially all of the assets of Spectrum Technologies, Inc. ("Spectrum") for a cash purchase price of $11.8 million, pursuant to an Asset Purchase Agreement. The Company paid $10.1 million on the effective date and withheld $1.7 million for typical holdback provisions, as provided by the Asset Purchase Agreement. Headquartered in Paxinos, Pennsylvania, Spectrum provides commercial calibrations, test equipment repair services and product sales throughout North America.

Effective January 18, 2016, the Company acquired Dispersion Laboratory Inc. ("Dispersion"), through its wholly owned subsidiary, Transcat Canada Inc., for less than $1.0 million. Headquartered near Montreal, Quebec, Dispersion provides fully accredited services for the calibration, repair and product sales of weights, balances, temperature instruments and liquid handling devices.

For the above acquisitions, the allocation of the respective purchase prices to the fair value of the net assets acquired has not been completed. The results of operations of these acquisitions will be included with the results of the Company from their respective dates of acquisition.