##### Table of Contents



UNITED
STATESSECURITIES 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: September 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.
  Ohio
    
    16-0874418(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 35 Vantage Point Drive, Rochester, New York 14624
 (585) 352-7777
 þ o
  o o þ
 o þ




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##### 



Page(s)PART I. FINANCIAL INFORMATIONItem 1. Consolidated Financial Statements:Consolidated Statements of Operations and Comprehensive Income for the Second Quarter and Six Months Ended September 23, 2006 and September 24, 2005
    
    3Consolidated Balance Sheets as of September 23, 2006 and March 25, 2006
    
    4Consolidated Statements of Cash Flows for the Six Months Ended September 23, 2006 and September 24, 2005
    
    5Consolidated Statements of Shareholders Equity for the Six Months Ended September 23, 2006
    
    6Notes to Consolidated Financial Statements
    
    7-12Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    13-23Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    24Item 4. Controls and Procedures
    
    24PART II. OTHER INFORMATIONItem 4. Submission of Matters to a Vote of Security Holders
    
    25Item 5. Other Information
    
    25Item 6. Exhibits
    
    25SIGNATURES
    
    26INDEX TO EXHIBITS
    
    27EX-31.1EX-31.2EX-32.1
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TRANSCAT, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
 (Unaudited)
    
    
    (Unaudited)Second Quarter Ended
    
    
    Six Months EndedSeptember
    
    
    September
    
    
    September
    
    
    September23, 2006
    
    
    24, 2005
    
    
    23, 2006
    
    
    24, 2005Product Sales
    
    $
    9,880
    
    
    $
    9,412
    
    
    $
    20,417
    
    
    $
    18,797Service Sales
    
    
    4,980
    
    
    
    4,707
    
    
    
    9,963
    
    
    
    9,387Net Sales
    
    
    14,860
    
    
    
    14,119
    
    
    
    30,380
    
    
    
    28,184Cost of Products Sold
    
    
    7,415
    
    
    
    7,087
    
    
    
    15,244
    
    
    
    14,213Cost of Services Sold
    
    
    3,897
    
    
    
    3,423
    
    
    
    7,728
    
    
    
    6,757Total Cost of Products and Services Sold
    
    
    11,312
    
    
    
    10,510
    
    
    
    22,972
    
    
    
    20,970Gross Profit
    
    
    3,548
    
    
    
    3,609
    
    
    
    7,408
    
    
    
    7,214Selling, Marketing, and Warehouse Expenses
    
    
    1,807
    
    
    
    1,850
    
    
    
    3,942
    
    
    
    3,943Administrative Expenses
    
    
    1,222
    
    
    
    1,247
    
    
    
    2,610
    
    
    
    2,429Total Operating Expenses
    
    
    3,029
    
    
    
    3,097
    
    
    
    6,552
    
    
    
    6,372Operating Income
    
    
    519
    
    
    
    512
    
    
    
    856
    
    
    
    842Interest Expense
    
    
    90
    
    
    
    109
    
    
    
    184
    
    
    
    223Other Expense
    
    
    46
    
    
    
    54
    
    
    
    120
    
    
    
    96Total Other Expense
    
    
    136
    
    
    
    163
    
    
    
    304
    
    
    
    319Income Before Income Taxes
    
    
    383
    
    
    
    349
    
    
    
    552
    
    
    
    523Provision for Income Taxes
    
    
    137
    
    
    
    
    
    
    
    189
    
    
    
    Net Income
    
    
    246
    
    
    
    349
    
    
    
    363
    
    
    
    523Other Comprehensive Income:Currency Translation Adjustment
    
    
    13
    
    
    
    99
    
    
    
    94
    
    
    
    80Comprehensive Income
    
    $
    259
    
    
    $
    448
    
    
    $
    457
    
    
    $
    603Basic Earnings Per Share
    
    $
    0.04
    
    
    $
    0.05
    
    
    $
    0.05
    
    
    $
    0.08Average Shares Outstanding
    
    
    6,902
    
    
    
    6,618
    
    
    
    6,864
    
    
    
    6,574Diluted Earnings Per Share
    
    $
    0.03
    
    
    $
    0.05
    
    
    $
    0.05
    
    
    $
    0.07Average Shares Outstanding
    
    
    7,425
    
    
    
    7,315
    
    
    
    7,377
    
    
    
    7,269
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TRANSCAT, INC.
 
 CONSOLIDATED BALANCE SHEETS
 (Unaudited)September
    
    
    March23, 2006
    
    
    25, 2006ASSETSCurrent Assets:Cash
    
    $
    97
    
    
    $
    115Accounts Receivable, less allowance for doubtful accounts of $79
and $63 as of September 23, 2006 and March 25, 2006, respectively
    
    
    7,138
    
    
    
    7,989Other Receivables
    
    
    378
    
    
    
    Finished Goods Inventory, net
    
    
    4,003
    
    
    
    3,952Prepaid Expenses and Deferred Charges
    
    
    818
    
    
    
    732Deferred Tax Asset
    
    
    1,069
    
    
    
    1,038Total Current Assets
    
    
    13,503
    
    
    
    13,826Property, Plant and Equipment, net
    
    
    2,598
    
    
    
    2,637Assets Under Capital Leases, net
    
    
    17
    
    
    
    50Goodwill
    
    
    2,967
    
    
    
    2,967Prepaid Expenses and Deferred Charges
    
    
    58
    
    
    
    113Deferred Tax Asset
    
    
    1,445
    
    
    
    1,624Other Assets
    
    
    277
    
    
    
    271Total Assets
    
    $
    20,865
    
    
    $
    21,488LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts Payable
    
    $
    3,811
    
    
    $
    4,219Accrued Payrolls, Commissions and Other
    
    
    1,606
    
    
    
    2,530Income Taxes Payable
    
    
    61
    
    
    
    102Current Portion of Term Loan
    
    
    604
    
    
    
    667Capital Lease Obligations
    
    
    21
    
    
    
    56Revolving Line of Credit
    
    
    3,475
    
    
    
    3,252Total Current Liabilities
    
    
    9,578
    
    
    
    10,826Term Loan, less current portion
    
    
    83
    
    
    
    353Deferred Compensation
    
    
    125
    
    
    
    118Deferred Gain on TPG Divestiture
    
    
    1,544
    
    
    
    1,544Total Liabilities
    
    
    11,330
    
    
    
    12,841Shareholders Equity:Common Stock, par value $0.50 per share, 30,000,000 shares authorized;
7,174,689 and 7,048,028 shares issued as of September 23, 2006 and
March 25, 2006, respectively; 6,908,341 and 6,791,240 shares
outstanding as of September 23, 2006 and March 25, 2006, respectively
    
    
    3,587
    
    
    
    3,524Capital in Excess of Par Value
    
    
    5,091
    
    
    
    4,641Warrants
    
    
    329
    
    
    
    329Unearned Compensation
    
    
    (47
    )
    
    
    (15
    )Accumulated Other Comprehensive Gain
    
    
    275
    
    
    
    181Retained Earnings
    
    
    1,238
    
    
    
    875Less: Treasury Stock, at cost, 266,348 and 256,788 shares as of
September 23, 2006 and March 25, 2006, respectively
    
    
    (938
    )
    
    
    (888
    )Total Shareholders Equity
    
    
    9,535
    
    
    
    8,647Total Liabilities and Shareholders Equity
    
    $
    20,865
    
    
    $
    21,488
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TRANSCAT, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)Six Months EndedSeptember
    
    
    September23, 2006
    
    
    24, 2005Cash Flows from Operating Activities:Net Income
    
    $
    363
    
    
    $
    523Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:Deferred Income Taxes
    
    
    148
    
    
    
    Depreciation and Amortization
    
    
    769
    
    
    
    610Provision for Doubtful Accounts Receivable
    
    
    47
    
    
    
    13Provision for Returns
    
    
    1
    
    
    
    (3
    )Provision for Slow Moving or Obsolete Inventory
    
    
    (5
    )
    
    
    6Common Stock Expense
    
    
    304
    
    
    
    44Amortization of Unearned Compensation
    
    
    24
    
    
    
    24Changes in Assets and Liabilities:Accounts Receivable and Other Receivables
    
    
    515
    
    
    
    1,474Inventory
    
    
    (46
    )
    
    
    456Prepaid Expenses, Deferred Charges and Other
    
    
    (280
    )
    
    
    (421
    )Accounts Payable
    
    
    (408
    )
    
    
    (414
    )Accrued Payrolls, Commissions and Other
    
    
    (924
    )
    
    
    (277
    )Income Taxes Payable
    
    
    (41
    )
    
    
    Deposits
    
    
    
    
    
    
    (37
    )Deferred Compensation
    
    
    
    
    
    
    (6
    )Net Cash Provided by Operating Activities
    
    
    467
    
    
    
    1,992Cash Flows from Investing Activities:Purchase of Property, Plant and Equipment
    
    
    (454
    )
    
    
    (362
    )Net Cash Used in Investing Activities
    
    
    (454
    )
    
    
    (362
    )Cash Flows from Financing Activities:Revolving Line of Credit, net
    
    
    223
    
    
    
    (1,494
    )Payments on Term Loans
    
    
    (333
    )
    
    
    (424
    )Payments on Capital Leases
    
    
    (35
    )
    
    
    (32
    )Issuance of Common Stock
    
    
    110
    
    
    
    229Net Cash Used in Financing Activities
    
    
    (35
    )
    
    
    (1,721
    )Effect of Exchange Rate Changes on Cash
    
    
    4
    
    
    
    80Net Decrease in Cash
    
    
    (18
    )
    
    
    (11
    )Cash at Beginning of Period
    
    
    115
    
    
    
    106Cash at End of Period
    
    $
    97
    
    
    $
    95Supplemental Disclosure of Non-Cash Financing Activity:Treasury Stock Acquired in Cashless Exercise of Stock Options
    
    $
    50
    
    
    $
    Non-Cash Issuance of Common Stock
    
    $
    109
    
    
    $
    
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TRANSCAT, INC.
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 CapitalCommon Stock
    
    
    In
    
    
    
    
    
    
    
    
    
    Accumulated
    
    
    
    
    
    
    Treasury StockIssued
    
    
    Excess
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    Outstanding$0.50 Par Value
    
    
    Of Par
    
    
    
    
    
    Unearned
    
    
    Comprehensive
    
    
    Retained
    
    
    at CostShares
    
    
    Amount
    
    
    Value
    
    
    Warrants
    
    
    Compensation
    
    
    Gain
    
    
    Earnings
    
    
    Shares
    
    
    Amount
    
    
    TotalBalance as
of March 25, 2006
    
    
    7,048
    
    
    $
    3,524
    
    
    $
    4,641
    
    
    $
    329
    
    
    $
    (15
    )
    
    $
    181
    
    
    $
    875
    
    
    
    257
    
    
    $
    (888
    )
    
    $
    8,647Issuance of Common Stock
    
    
    106
    
    
    
    53
    
    
    
    107
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    (50
    )
    
    
    110Stock Option Compensation
    
    
    
    
    
    
    
    
    
    
    244
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    244Restricted Stock:Issuance of Restricted Stock
    
    
    20
    
    
    
    10
    
    
    
    99
    
    
    
    
    
    
    
    (56
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53Amortization of Unearned
Compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24Comprehensive Income:Currency Translation
Adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    363
    
    
    
    
    
    
    
    
    
    
    
    363Balance as
of September 23, 2006
    
    
    7,174
    
    
    $
    3,587
    
    
    $
    5,091
    
    
    $
    329
    
    
    $
    (47
    )
    
    $
    275
    
    
    $
    1,238
    
    
    
    266
    
    
    $
    (938
    )
    
    $
    9,535
  6




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TRANSCAT, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1
 NATURE OF BUSINESS AND BASIS OF PRESENTATION
 Description of Business:
 Basis of Presentation:
 NOTE 2
 EARNINGS PER SHARE
   Second Quarter Ended
    
    
    Six Months EndedSeptember
    
    
    September
    
    
    September
    
    
    September23, 2006
    
    
    24, 2005
    
    
    23, 2006
    
    
    24, 2005Shares Outstanding:Dilutive
    
    
    523
    
    
    
    697
    
    
    
    513
    
    
    
    695Anti-dilutive
    
    
    368
    
    
    
    501
    
    
    
    378
    
    
    
    503Total
    
    
    891
    
    
    
    1,198
    
    
    
    891
    
    
    
    1,198Range of Exercise Prices per Share:Options
    
    $
    0.80$5.80
    
    
    $
    0.80$4.26
    
    
    $
    0.80$5.80
    
    
    $
    0.80$4.26Warrants
    
    $
    0.97$5.80
    
    
    $
    0.97$4.26
    
    
    $
    0.97$5.80
    
    
    $
    0.97$4.26
 7




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NOTE 3
 STOCK-BASED COMPENSATION
     Expected life
    
    6 yearsAnnualized volatility rate
    
    
    80%Risk-free rate of return
    
    
    4.75%Dividend rate
    
    
    0.0%
   8




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Second Quarter Ended
    
    
    Six Months EndedSeptember
    
    
    September
    
    
    September
    
    
    September23, 2006
    
    
    24, 2005
    
    
    23, 2006
    
    
    24, 2005Net Income, as reported
    
    $
    246
    
    
    $
    349
    
    
    $
    363
    
    
    $
    523Add: Stock-based employee compensation expense
included in reported net income, net of related
tax effects
    
    
    83
    
    
    
    11
    
    
    
    205
    
    
    
    24Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects
    
    
    (83
    )
    
    
    (59
    )
    
    
    (205
    )
    
    
    (120
    )Pro Forma Net Income
    
    $
    246
    
    
    $
    301
    
    
    $
    363
    
    
    $
    427Earnings Per Share:Basic  as reported
    
    $
    0.04
    
    
    $
    0.05
    
    
    $
    0.05
    
    
    $
    0.08Basic  pro forma
    
    $
    0.04
    
    
    $
    0.05
    
    
    $
    0.05
    
    
    $
    0.06Average Shares Outstanding
    
    
    6,902
    
    
    
    6,618
    
    
    
    6,864
    
    
    
    6,574Diluted  as reported
    
    $
    0.03
    
    
    $
    0.05
    
    
    $
    0.05
    
    
    $
    0.07Diluted  pro forma
    
    $
    0.03
    
    
    $
    0.04
    
    
    $
    0.05
    
    
    $
    0.06Average Shares Outstanding
    
    
    7,425
    
    
    
    7,315
    
    
    
    7,377
    
    
    
    7,269
   Number
    
    
    Weighted
    
    
    Weighted Average
    
    
    Aggregateof
    
    
    Average
    
    
    Remaining Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Term (in years)
    
    
    ValueOutstanding as of March 25, 2006
    
    
    452
    
    
    $
    1.97Add (Deduct):Granted
    
    
    54
    
    
    
    5.70Exercised
    
    
    (71
    )
    
    
    1.00Forfeited
    
    
    (7
    )
    
    
    2.96Outstanding as of September 23, 2006
    
    
    428
    
    
    
    2.59
    
    
    
    5
    
    
    $
    1,169Exercisable as of September 23, 2006
    
    
    253
    
    
    $
    1.66
    
    
    
    3
    
    
    $
    911
    9




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NOTE 4
 DEBT
 Description.
     Term Loans.
 Principal Payments Before GivingEffect to Excess Cash Flow PaymentsTerm Loan A
    
    
    Term Loan B
    
    
    TotalFiscal Year 2007 (1)
    
    $
    250
    
    
    $
    84
    
    
    $
    334Fiscal Year 2008
    
    
    333
    
    
    
    20
    
    
    
    353Total
    
    $
    583
    
    
    $
    104
    
    
    $
    687
 
 (1)
    
    Current portion on the Consolidated Balance Sheet includes six months of fiscal year
2007 and six months of fiscal year 2008. LOC.
  10




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Interest.
 Fixed ChargeTier
    
    Coverage Ratio
    
    Term Loan A
    
    Term Loan B
    
    LOC1
    
    1.249 or less
    
    (a) Prime Rate plus 0.125% or
    
    Prime Rate plus 0.375%
    
    (a) Prime Rate minus 0.375% or(b) LIBOR plus 2.875%
    
    
    
    (b) LIBOR plus 2.375%2
    
    1.25 to 1.49
    
    (a) Prime Rate minus 0.125% or
    
    Prime Rate plus 0.125%
    
    (a) Prime Rate minus 0.375% or(b) LIBOR plus 2.625%
    
    
    
    (b) LIBOR plus 2.125%3
    
    1.50 or greater
    
    (a) Prime Rate minus 0.375% or
    
    Prime Rate minus 0.125%
    
    (a) Prime Rate minus 0.375% or(b) LIBOR plus 2.375%
    
    
    
    (b) LIBOR plus 1.875%
 Covenants.
 Loan Costs.
 Other Terms.
  11




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NOTE 5
 SEGMENT INFORMATION
  Second Quarter Ended
    
    
    Six Months EndedSeptember
    
    
    September
    
    
    September
    
    
    September23, 2006
    
    
    24, 2005
    
    
    23, 2006
    
    
    24, 2005Net Sales:Product
    
    $
    9,880
    
    
    $
    9,412
    
    
    $
    20,417
    
    
    $
    18,797Service
    
    
    4,980
    
    
    
    4,707
    
    
    
    9,963
    
    
    
    9,387Total
    
    
    14,860
    
    
    
    14,119
    
    
    
    30,380
    
    
    
    28,184Gross Profit:Product
    
    
    2,465
    
    
    
    2,325
    
    
    
    5,173
    
    
    
    4,584Service
    
    
    1,083
    
    
    
    1,284
    
    
    
    2,235
    
    
    
    2,630Total
    
    
    3,548
    
    
    
    3,609
    
    
    
    7,408
    
    
    
    7,214Operating Expenses:Product
    
    
    1,856
    
    
    
    1,793
    
    
    
    3,962
    
    
    
    3,699Service
    
    
    1,173
    
    
    
    1,304
    
    
    
    2,590
    
    
    
    2,673Total
    
    
    3,029
    
    
    
    3,097
    
    
    
    6,552
    
    
    
    6,372Operating Income (Loss):Product
    
    
    609
    
    
    
    532
    
    
    
    1,211
    
    
    
    885Service
    
    
    (90
    )
    
    
    (20
    )
    
    
    (355
    )
    
    
    (43
    )Total
    
    
    519
    
    
    
    512
    
    
    
    856
    
    
    
    842Unallocated Amounts:Other Expense (including interest)
    
    
    136
    
    
    
    163
    
    
    
    304
    
    
    
    319Provision for Income Taxes
    
    
    137
    
    
    
    
    
    
    
    189
    
    
    
    Total
    
    
    273
    
    
    
    163
    
    
    
    493
    
    
    
    319Net Income
    
    $
    246
    
    
    $
    349
    
    
    $
    363
    
    
    $
    523
 NOTE 6
 COMMITMENTS
 Unconditional Purchase Obligation:
 
 NOTE 7  VENDOR CONCENTRATION
  12




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking Statements.
 Rounding.
 CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 Revenue Recognition:
 Accounts Receivable:
 Stock Options:
 Off-Balance Sheet Arrangements:
 13




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##### Table of Contents



RESULTS OF OPERATIONS
  (Unaudited)
    
    (Unaudited)Second Quarter Ended
    
    Six Months EndedSeptember
    
    September
    
    September
    
    September23, 2006
    
    24, 2005
    
    23, 2006
    
    24, 2005As a Percentage of Net Sales:Product Sales
    
    
    66.5
    %
    
    
    66.7
    %
    
    
    67.2
    %
    
    
    66.7
    %Service Sales
    
    
    33.5
    %
    
    
    33.3
    %
    
    
    32.8
    %
    
    
    33.3
    %Net Sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Product Gross Profit
    
    
    24.9
    %
    
    
    24.7
    %
    
    
    25.3
    %
    
    
    24.4
    %Service Gross Profit
    
    
    21.7
    %
    
    
    27.3
    %
    
    
    22.4
    %
    
    
    28.0
    %Total Gross Profit
    
    
    23.9
    %
    
    
    25.6
    %
    
    
    24.4
    %
    
    
    25.6
    %Selling, Marketing, and Warehouse Expenses
    
    
    12.2
    %
    
    
    13.1
    %
    
    
    13.0
    %
    
    
    14.0
    %Administrative Expenses
    
    
    8.2
    %
    
    
    8.8
    %
    
    
    8.6
    %
    
    
    8.6
    %Total Operating Expenses
    
    
    20.4
    %
    
    
    21.9
    %
    
    
    21.6
    %
    
    
    22.6
    %Operating Income
    
    
    3.5
    %
    
    
    3.7
    %
    
    
    2.8
    %
    
    
    3.0
    %Interest Expense
    
    
    0.6
    %
    
    
    0.8
    %
    
    
    0.6
    %
    
    
    0.8
    %Other Expense
    
    
    0.3
    %
    
    
    0.4
    %
    
    
    0.4
    %
    
    
    0.3
    %Total Other Expense
    
    
    0.9
    %
    
    
    1.2
    %
    
    
    1.0
    %
    
    
    1.1
    %Income Before Income Taxes
    
    
    2.6
    %
    
    
    2.5
    %
    
    
    1.8
    %
    
    
    1.9
    %Provision for Income Taxes
    
    
    0.9
    %
    
    
    
    %
    
    
    0.6
    %
    
    
    
    %Net Income
    
    
    1.7
    %
    
    
    2.5
    %
    
    
    1.2
    %
    
    
    1.9
    %
 14




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##### Table of Contents



SECOND QUARTER ENDED SEPTEMBER 23, 2006 COMPARED TO SECOND QUARTER ENDED SEPTEMBER 24, 2005 (dollars in millions):
 Sales:
 Second Quarter EndedSeptember
    
    
    September23, 2006
    
    
    24, 2005Net Sales:Product
    
    $
    9.9
    
    
    $
    9.4Service
    
    
    5.0
    
    
    
    4.7Total
    
    $
    14.9
    
    
    $
    14.1
   FY 2007
    
    
    FY 2006Q2
    
    Q1
    
    
    Q4
    
    Q3
    
    Q2
    
    Q1Product Sales Growth
    
    
    5.3
    %
    
    
    11.7
    %
    
    
    
    4.0
    %
    
    
    16.2
    %
    
    
    13.3
    %
    
    
    5.6
    %
  FY 2007 Second Quarter
    
    
    FY 2006 Second QuarterPercent of
    
    Gross
    
    
    Percent of
    
    GrossNet Sales
    
    Profit % (1)
    
    
    Net Sales
    
    Profit % (1)Direct
    
    
    83.9
    %
    
    
    25.8
    %
    
    
    
    84.7
    %
    
    
    24.9
    %Government
    
    
    0.7
    %
    
    
    5.9
    %
    
    
    
    1.6
    %
    
    
    2.1
    %Indirect
    
    
    15.4
    %
    
    
    13.0
    %
    
    
    
    13.7
    %
    
    
    13.9
    %Total
    
    
    100.0
    %
    
    
    23.7
    %
    
    
    
    100.0
    %
    
    
    23.0
    %
 
 (1)
    
    Calculated as net sales less purchase costs divided by net sales. 15




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##### Table of Contents



FY 2007
    
    
    FY 2006Q2
    
    Q1
    
    
    Q4
    
    Q3
    
    Q2
    
    Q1Total Unshippable Orders
    
    $
    2.1
    
    
    $
    1.4
    
    
    
    $
    1.4
    
    
    $
    1.3
    
    
    $
    1.5
    
    
    $
    1.3% of Unshippable Orders that
Are Backorders
    
    
    90.5
    %
    
    
    78.6
    %
    
    
    
    92.9
    %
    
    
    84.6
    %
    
    
    72.1
    %
    
    
    78.7
    %
  FY 2007
    
    
    FY 2006Q2
    
    Q1
    
    
    Q4
    
    Q3
    
    Q2
    
    Q1Service Sales Growth
    
    
    6.4
    %
    
    
    6.4
    %
    
    
    
    0.0
    %
    
    
    11.9
    %
    
    
    11.9
    %
    
    
    6.8
    %
 Gross Profit:
 Second Quarter EndedSeptember
    
    
    September23, 2006
    
    
    24, 2005Gross Profit:Product
    
    $
    2.5
    
    
    $
    2.3Service
    
    
    1.1
    
    
    
    1.3Total
    
    $
    3.6
    
    
    $
    3.6
   16




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##### Table of Contents



FY 2007
    
    
    FY 2006Q2
    
    Q1
    
    
    Q4
    
    Q3
    
    Q2
    
    Q1Product Gross Profit % (1)
    
    
    23.7
    %
    
    
    22.1
    %
    
    
    
    23.1
    %
    
    
    23.9
    %
    
    
    22.6
    %
    
    
    22.8
    %Other Income (Expense) % (2)
    
    
    1.6
    %
    
    
    3.6
    %
    
    
    
    -0.2
    %
    
    
    0.4
    %
    
    
    1.9
    %
    
    
    1.7
    %Product Gross Profit %
    
    
    25.3
    %
    
    
    25.7
    %
    
    
    
    22.9
    %
    
    
    24.3
    %
    
    
    24.5
    %
    
    
    24.5
    %
 
 (1)
    
    Calculated as 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.  FY 2007
    
    
    FY 2006Q2
    
    Q1
    
    
    Q4
    
    Q3
    
    Q2
    
    Q1Service Gross Profit %
    
    
    22.0
    %
    
    
    24.0
    %
    
    
    
    29.1
    %
    
    
    23.4
    %
    
    
    27.7
    %
    
    
    27.7
    %
 Operating Expenses:
 Second Quarter EndedSeptember
    
    
    September23, 2006
    
    
    24, 2005Operating Expenses:Selling, Marketing, and Warehouse
    
    $
    1.8
    
    
    $
    1.9Administrative
    
    
    1.2
    
    
    
    1.2Total
    
    $
    3.0
    
    
    $
    3.1
  Other Expense:
 Second Quarter EndedSeptember
    
    
    September23, 2006
    
    
    24, 2005Other Expense:Interest Expense
    
    $
    0.1
    
    
    $
    0.1Other Expense
    
    
    
    
    
    
    0.1Total
    
    $
    0.1
    
    
    $
    0.2
 17




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##### Table of Contents



Taxes:
 Second
Quarter EndedSeptember
    
    
    September23, 2006
    
    
    24, 2005Provision for Income Taxes
    
    $
    0.1
    
    
    $
    
  18




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##### Table of Contents



SIX MONTHS ENDED SEPTEMBER 23, 2006 COMPARED TO SIX MONTHS ENDED SEPTEMBER 24, 2005 (dollars in millions):
 Sales:
 Six Months EndedSeptember
    
    
    September23, 2006
    
    
    24, 2005Net Sales:Product
    
    $
    20.4
    
    
    $
    18.8Service
    
    
    10.0
    
    
    
    9.4Total
    
    $
    30.4
    
    
    $
    28.2
    Six Months Ended
    
    
    Six Months EndedSeptember 23, 2006
    
    
    September 24, 2005Percent of
    
    Gross
    
    
    Percent of
    
    GrossNet Sales
    
    Profit % (1)
    
    
    Net Sales
    
    Profit % (1)Direct
    
    
    82.5
    %
    
    
    25.4
    %
    
    
    
    85.0
    %
    
    
    25.0
    %Government
    
    
    0.9
    %
    
    
    2.9
    %
    
    
    
    2.0
    %
    
    
    1.9
    %Indirect
    
    
    16.6
    %
    
    
    12.5
    %
    
    
    
    13.0
    %
    
    
    13.4
    %Total
    
    
    100.0
    %
    
    
    23.0
    %
    
    
    
    100.0
    %
    
    
    23.0
    %
 
 (1)
    
    Calculated at net sales less purchase costs divided by net sales.  Gross Profit:
 Six Months EndedSeptember
    
    
    September23, 2006
    
    
    24, 2005Gross Profit:Product
    
    $
    5.2
    
    
    $
    4.6Service
    
    
    2.2
    
    
    
    2.6Total
    
    $
    7.4
    
    
    $
    7.2
  19




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##### Table of Contents



Operating Expenses:
 Six Months EndedSeptember
    
    
    September23, 2006
    
    
    24, 2005Operating Expenses:Selling, Marketing, and Warehouse
    
    $
    3.9
    
    
    $
    3.9Administrative
    
    
    2.6
    
    
    
    2.4Total
    
    $
    6.5
    
    
    $
    6.3
  Other Expense:
 Six Months EndedSeptember
    
    
    September23, 2006
    
    
    24, 2005Other Expense:Interest Expense
    
    $
    0.2
    
    
    $
    0.2Other Expense
    
    
    0.1
    
    
    
    0.1Total
    
    $
    0.3
    
    
    $
    0.3
  Taxes:
 Six Months EndedSeptember
    
    
    September23, 2006
    
    
    24, 2005Provision for Income Taxes
    
    $
    0.2
    
    
    $
    
  20




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows.
 Six Months EndedSeptember
    
    September23, 2006
    
    24, 2005Cash (Used in) Provided by:Operating Activities
    
    $
    467
    
    
    $
    1,992Investing Activities
    
    
    (454
    )
    
    
    (362
    )Financing Activities
    
    
    (35
    )
    
    
    (1,721
    )
  
    
    Inventory/Accounts Payable: Our inventory of $4.0 million on September 23, 2006 is
flat with fiscal year 2006 year-end inventory on March 25, 2006 and $1.4 million less
than the inventory level on September 24, 2005. The year-over-year decrease is due to
refined inventory ordering models and increased focus on maintaining lower inventory
levels. Our $0.3 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:
 September
    
    September23, 2006
    
    24, 2005Accounts Payable
    
    $
    3.8
    
    
    $
    4.1Inventory, net
    
    $
    4.0
    
    
    $
    5.4Accounts Payable/Inventory Ratio
    
    
    0.95
    
    
    
    0.76
 
    
    Receivables: The increase in our accounts receivable at the end of our second
quarter of fiscal year 2007 compared to the end of the second quarter of fiscal year
2006 is primarily due to sales growth in our fiscal year 2007 second quarter. We have
continued to maintain strong collections on our accounts receivable, reflected in our
days sales outstanding, as the following table illustrates (dollars in millions):
 September
    
    September23, 2006
    
    24, 2005Net Sales, for the last two fiscal months
    
    $
    10.4
    
    
    $
    9.9Accounts Receivable, net
    
    $
    7.1
    
    
    $
    6.3Days Sales Outstanding (based on 60 days)
    
    
    41
    
    
    
    38
   September
    
    September23, 2006
    
    24, 2005Term Debt
    
    $
    0.7
    
    
    $
    1.4Revolving Line of Credit
    
    
    3.5
    
    
    
    4.0Capital Lease Obligations
    
    
    
    
    
    
    0.1Total Debt
    
    $
    4.2
    
    
    $
    5.5
 21




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##### Table of Contents



Debt.
  FY 2007

    
    

    FY 2006Q2

    
    Q1

    

    
    Q4
    
    Q3
    
    Q2
    
    Q1Excess EBITDA

    
    
    28
    %

    
    
    19
    %

    

    
    
    14
    %

    
    
    30
    %

    
    
    33
    %

    
    
    23
    %
  Unconditional Purchase Obligation.
   22




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##### Table of Contents



OUTLOOK
      23




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 INTEREST RATES
   Fixed ChargeTier
    
    Coverage Ratio
    
    Term Loan A
    
    Term Loan B
    
    LOC1
    
    1.249 or less
    
    (a) Prime Rate plus 0.125% or
    
    Prime Rate plus 0.375%
    
    (a) Prime Rate minus 0.375% or(b) LIBOR plus 2.875%
    
    
    
    (b) LIBOR plus 2.375%2
    
    1.25 to 1.49
    
    (a) Prime Rate minus 0.125% or
    
    Prime Rate plus 0.125%
    
    (a) Prime Rate minus 0.375% or(b) LIBOR plus 2.625%
    
    
    
    (b) LIBOR plus 2.125%3
    
    1.50 or greater
    
    (a) Prime Rate minus 0.375% or
    
    Prime Rate minus 0.125%
    
    (a) Prime Rate minus 0.375% or(b) LIBOR plus 2.375%
    
    
    
    (b) LIBOR plus 1.875%
  FOREIGN CURRENCY
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures.
 Changes in Internal Controls over Financial Reporting.
 24




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  Proposal 1
  Nominees
    
    Votes For
    
    Votes WithheldFrancis R. Bradley
    
    
    6,496,211
    
    
    
    48,162Cornelius J. Murphy
    
    
    6,249,647
    
    
    
    294,726Alan H. Resnick
    
    
    6,496,111
    
    
    
    48,262Carl E. Sassano
    
    
    6,491,772
    
    
    
    52,601
  Proposal 2
  Votes For:
    
    
    3,910,612Votes Against:
    
    
    467,581Votes Abstained:
    
    
    66,914Broker Non-Votes:
    
    
    2,099,266
 Proposal 3
 
 Votes For:
    
    
    6,521,275Votes Against:
    
    
    6,572Votes Abstained:
    
    
    16,626
 
 ITEM 5. OTHER INFORMATION
     
 ITEM 6. EXHIBITS
  25




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##### Table of Contents



SIGNATURES
  TRANSCAT, INC.Date: November
7, 2006
    
    /s/ Carl E. SassanoCarl E. SassanoChairman and Chief Executive OfficerDate: November
7, 2006
    
    /s/ John J. ZimmerJohn J. ZimmerVice President of Finance and Chief Financial Officer
 26




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##### Table of Contents



INDEX TO EXHIBITS
 (10)
    
    Material Contracts
 10.1
    
    Summary of the Transcat, Inc.
Post-Retirement Benefits and Long-Term Care
Insurance Plan is incorporated herein by
reference from the Companys Current Report
on Form 8-K dated July 25, 2006.10.2
    
    Transcat, Inc. 2003 Incentive Plan, as
amended, is incorporated herein by
reference from Appendix D to the Companys
definitive proxy statement filed on July
10, 2006 in connection with the 2006 annual
meeting of shareholders.
 (31)
    
    Rule 13a-14(a)/15d-14(a) Certifications
 31.1
    
    Certification of Chief Executive Officer31.2
    
    Certification of Chief Financial Officer
 (32)
    
    Section 1350 Certifications
 32.1
    
    Section 1350 Certifications
 27