##### Table of Contents



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




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##### Table of Contents



TRANSCAT, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
  (Unaudited)
    
    
    (Unaudited)Third Quarter Ended
    
    
    Nine Months EndedDecember
    
    
    December
    
    
    December
    
    
    December23, 2006
    
    
    24, 2005
    
    
    23, 2006
    
    
    24, 2005Product Sales
    
    $
    12,296
    
    
    $
    11,500
    
    
    $
    32,713
    
    
    $
    30,297Service Sales
    
    
    4,944
    
    
    
    4,733
    
    
    
    14,907
    
    
    
    14,120Net Sales
    
    
    17,240
    
    
    
    16,233
    
    
    
    47,620
    
    
    
    44,417Cost of Products Sold
    
    
    8,926
    
    
    
    8,704
    
    
    
    24,170
    
    
    
    22,917Cost of Services Sold
    
    
    4,003
    
    
    
    3,674
    
    
    
    11,731
    
    
    
    10,431Total Cost of Products and Services Sold
    
    
    12,929
    
    
    
    12,378
    
    
    
    35,901
    
    
    
    33,348Gross Profit
    
    
    4,311
    
    
    
    3,855
    
    
    
    11,719
    
    
    
    11,069Selling, Marketing, and Warehouse Expenses
    
    
    2,155
    
    
    
    2,256
    
    
    
    6,097
    
    
    
    6,199Administrative Expenses
    
    
    1,403
    
    
    
    1,178
    
    
    
    4,013
    
    
    
    3,607Total Operating Expenses
    
    
    3,558
    
    
    
    3,434
    
    
    
    10,110
    
    
    
    9,806Gain on TPG Divestiture
    
    
    1,544
    
    
    
    
    
    
    
    1,544
    
    
    
    Operating Income
    
    
    2,297
    
    
    
    421
    
    
    
    3,153
    
    
    
    1,263Interest Expense
    
    
    84
    
    
    
    98
    
    
    
    268
    
    
    
    321Other Expense
    
    
    145
    
    
    
    34
    
    
    
    265
    
    
    
    130Total Other Expense
    
    
    229
    
    
    
    132
    
    
    
    533
    
    
    
    451Income Before Income Taxes
    
    
    2,068
    
    
    
    289
    
    
    
    2,620
    
    
    
    812Provision for Income Taxes
    
    
    861
    
    
    
    
    
    
    
    1,050
    
    
    
    Net Income
    
    
    1,207
    
    
    
    289
    
    
    
    1,570
    
    
    
    812Other Comprehensive (Loss) Income
    
    
    (239
    )
    
    
    12
    
    
    
    (145
    )
    
    
    92Comprehensive Income
    
    $
    968
    
    
    $
    301
    
    
    $
    1,425
    
    
    $
    904Basic Earnings Per Share
    
    $
    0.17
    
    
    $
    0.04
    
    
    $
    0.23
    
    
    $
    0.12Average Shares Outstanding
    
    
    6,938
    
    
    
    6,682
    
    
    
    6,919
    
    
    
    6,611Diluted Earnings Per Share
    
    $
    0.16
    
    
    $
    0.04
    
    
    $
    0.21
    
    
    $
    0.11Average Shares Outstanding
    
    
    7,428
    
    
    
    7,288
    
    
    
    7,415
    
    
    
    7,196
  3




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TRANSCAT, INC.
 
 CONSOLIDATED BALANCE SHEETS
  (Unaudited)December
    
    
    March23, 2006
    
    
    25, 2006ASSETSCurrent Assets:Cash
    
    $
    138
    
    
    $
    115Accounts Receivable, less allowance for doubtful accounts of $83
and $63 as of December 23, 2006 and March 25, 2006, respectively
    
    
    7,863
    
    
    
    7,989Other Receivables
    
    
    626
    
    
    
    Finished Goods Inventory, net
    
    
    4,145
    
    
    
    3,952Prepaid Expenses and Deferred Charges
    
    
    1,046
    
    
    
    732Deferred Tax Asset
    
    
    1,059
    
    
    
    1,038Total Current Assets
    
    
    14,877
    
    
    
    13,826Property, Plant and Equipment, net
    
    
    2,593
    
    
    
    2,637Assets Under Capital Leases, net
    
    
    1
    
    
    
    50Goodwill
    
    
    2,967
    
    
    
    2,967Prepaid Expenses and Deferred Charges
    
    
    101
    
    
    
    113Deferred Tax Asset
    
    
    727
    
    
    
    1,624Other Assets
    
    
    266
    
    
    
    271Total Assets
    
    $
    21,532
    
    
    $
    21,488LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts Payable
    
    $
    4,417
    
    
    $
    4,219Accrued Payrolls, Commissions, and Other
    
    
    1,748
    
    
    
    2,530Income Taxes Payable
    
    
    
    
    
    
    102Current Portion of Term Loan
    
    
    
    
    
    
    667Capital Lease Obligations
    
    
    3
    
    
    
    56Revolving Line of Credit
    
    
    
    
    
    
    3,252Total Current Liabilities
    
    
    6,168
    
    
    
    10,826Term Loan, less current portion
    
    
    
    
    
    
    353Revolving Line of Credit
    
    
    4,359
    
    
    
    Deferred Compensation
    
    
    116
    
    
    
    118Deferred Gain on TPG Divestiture
    
    
    
    
    
    
    1,544Postretirement Benefit Obligation
    
    
    267
    
    
    
    Total Liabilities
    
    
    10,910
    
    
    
    12,841Shareholders 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
    
    
    
    3,524Capital in Excess of Par Value
    
    
    5,152
    
    
    
    4,641Warrants
    
    
    329
    
    
    
    329Unearned Compensation
    
    
    
    
    
    
    (15
    )Accumulated Other Comprehensive Gain
    
    
    36
    
    
    
    181Retained Earnings
    
    
    2,445
    
    
    
    875Less: 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
    
    
    
    8,647Total Liabilities and Shareholders Equity
    
    $
    21,532
    
    
    $
    21,488
  4




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TRANSCAT, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
  (Unaudited)Nine Months EndedDecember
    
    
    December23, 2006
    
    
    24, 2005Cash Flows from Operating Activities:Net Income
    
    $
    1,570
    
    
    $
    812Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:Deferred Income Taxes
    
    
    975
    
    
    
    Depreciation and Amortization
    
    
    1,226
    
    
    
    1,009Provision for Returns and Doubtful Accounts Receivable
    
    
    54
    
    
    
    5Provision for Slow Moving or Obsolete Inventory
    
    
    52
    
    
    
    6Common Stock Expense
    
    
    349
    
    
    
    78Amortization of Restricted Stock
    
    
    38
    
    
    
    35Gain on TPG Divestiture
    
    
    (1,544
    )
    
    
    Changes in Assets and Liabilities:Accounts Receivable and Other Receivables
    
    
    (537
    )
    
    
    306Inventory
    
    
    (245
    )
    
    
    299Prepaid Expenses, Deferred Charges and Other
    
    
    (721
    )
    
    
    (796
    )Accounts Payable
    
    
    198
    
    
    
    912Accrued Payrolls, Commissions and Other
    
    
    (777
    )
    
    
    (272
    )Income Taxes Payable
    
    
    (102
    )
    
    
    (12
    )Net Cash
Provided by Operating Activities
    
    
    536
    
    
    
    2,382Cash 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
    
    
    
    353Net Cash
Provided by (Used in) Financing Activities
    
    
    195
    
    
    
    (1,751
    )Effect of Exchange Rate Changes on Cash
    
    
    1
    
    
    
    5Net Increase in Cash
    
    
    23
    
    
    
    32Cash at Beginning of Period
    
    
    115
    
    
    
    106Cash at End of Period
    
    $
    138
    
    
    $
    138Supplemental Disclosures of Cash Flow Activity:Cash paid during the period for:Interest
    
    $
    278
    
    
    $
    326Income Taxes
    
    $
    177
    
    
    $
    42Supplemental Disclosure of Non-Cash Financing Activity:Treasury Stock Acquired in Cashless Exercise of Stock Options
    
    $
    50
    
    
    $
    Non-Cash Issuance of Common Stock
    
    $
    109
    
    
    $
    63Expiration of Warrants from Debt Retirement
    
    $
    
    
    
    $
    101Disposal of Fully Reserved Obsolete Inventory
    
    $
    
    
    
    $
    93
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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
    
    
    128
    
    
    
    64
    
    
    
    147
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    (50
    )
    
    
    161Reversal of Unearned
Compensation Upon
Adoption of SFAS 123R
    
    
    
    
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock Option
Compensation
    
    
    
    
    
    
    
    
    
    
    297
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    297Restricted Stock:Issuance of Restricted
Stock
    
    
    20
    
    
    
    10
    
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54Amortization of
Restricted Stock
    
    
    
    
    
    
    
    
    
    
    38
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38Comprehensive Income:Currency Translation
Adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18Unrecognized Prior Service
Cost, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (163
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (163
    )Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,570
    
    
    
    
    
    
    
    
    
    
    
    1,570Balance as of
December 23, 2006
    
    
    7,196
    
    
    $
    3,598
    
    
    $
    5,152
    
    
    $
    329
    
    
    $
    
    
    
    $
    36
    
    
    $
    2,445
    
    
    
    266
    
    
    $
    (938
    )
    
    $
    10,622
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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:
 Principles of Consolidation:
 Gain on TPG Divestiture:
 Recently Issued Accounting Pronouncements:
   NOTE 2  EARNINGS PER SHARE
  7




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Third Quarter Ended
    
    Nine Months EndedDecember
    
    December
    
    December
    
    December23, 2006
    
    24, 2005
    
    23, 2006
    
    24, 2005Shares Outstanding:Dilutive
    
    
    491
    
    
    
    606
    
    
    
    496
    
    
    
    585Anti-dilutive
    
    
    387
    
    
    
    409
    
    
    
    382
    
    
    
    430Total
    
    
    878
    
    
    
    1,015
    
    
    
    878
    
    
    
    1,015Range of Exercise Prices per Share:Options
    
    $
    0.80-$5.80
    
    
    $
    0.80-$4.52
    
    
    $
    0.80-$5.80
    
    
    $
    0.80-$4.52Warrants
    
    $
    0.97-$5.80
    
    
    $
    0.97-$4.26
    
    
    $
    0.97-$5.80
    
    
    $
    0.97-$4.26
 NOTE 3  STOCK-BASED COMPENSATION
    8




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Expected life
    
    6 yearsAnnualized volatility rate
    
    
    79% - 80
    %Risk-free rate of return
    
    
    4.67% - 4.75
    %Dividend rate
    
    
    0.0
    %
   Third Quarter Ended
    
    
    Nine Months EndedDecember
    
    
    December
    
    
    December
    
    
    December23, 2006
    
    
    24, 2005
    
    
    23, 2006
    
    
    24, 2005Net Income, as reported
    
    $
    1,207
    
    
    $
    289
    
    
    $
    1,570
    
    
    $
    812Add: Stock-based employee compensation expense
included in reported net income, net of related
tax effects
    
    
    44
    
    
    
    45
    
    
    
    248
    
    
    
    113Deduct: 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
    
    
    $
    662Earnings Per Share:Basic  as reported
    
    $
    0.17
    
    
    $
    0.04
    
    
    $
    0.23
    
    
    $
    0.12Basic  pro forma
    
    $
    0.17
    
    
    $
    0.04
    
    
    $
    0.23
    
    
    $
    0.10Average Shares Outstanding
    
    
    6,938
    
    
    
    6,682
    
    
    
    6,919
    
    
    
    6,611Diluted  as reported
    
    $
    0.16
    
    
    $
    0.04
    
    
    $
    0.21
    
    
    $
    0.11Diluted  pro forma
    
    $
    0.16
    
    
    $
    0.03
    
    
    $
    0.21
    
    
    $
    0.09Average Shares Outstanding
    
    
    7,428
    
    
    
    7,288
    
    
    
    7,415
    
    
    
    7,196
  9




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Weighted AverageNumber
    
    
    Weighted
    
    
    Remaining
    
    
    Aggregateof
    
    
    Average
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Term (in years)
    
    
    ValueOutstanding as of March 25, 2006
    
    
    452
    
    
    $
    1.97Add (Deduct):Granted
    
    
    57
    
    
    
    5.69Exercised
    
    
    (85
    )
    
    
    1.02Forfeited
    
    
    (9
    )
    
    
    2.70Outstanding as of December 23, 2006
    
    
    415
    
    
    
    2.67
    
    
    
    5
    
    
    $
    1,168Exercisable as of December 23, 2006
    
    
    298
    
    
    $
    1.87
    
    
    
    4
    
    
    $
    1,067
    NOTE 4  DEBT
 Description.
  Interest and Commitment Fees. 1 2
 Covenants.
 Loan Costs.
 10




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##### Table of Contents



Other Terms.
  NOTE 5  POSTRETIREMENT HEALTH CARE PLANS
     Postretirement benefit obligation at inception
    
    $
    262Service cost
    
    
    3Interest cost
    
    
    2Postretirement benefit obligation as of December 23, 2006
    
    
    267Fair 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
  Net periodic postretirement benefit cost:Service cost
    
    $
    3Interest cost
    
    
    25Benefit obligations recognized in other comprehensive loss:Unrecognized prior service cost, net of tax
    
    
    163Total recognized in net periodic benefit cost and other comprehensive loss
    
    $
    168Amount recognized in accumulated other comprehensive gain as of December 26, 2006:Unrecognized prior service cost, net of tax
    
    $
    163
 11




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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 thereafterDental care cost trend rate
    
    5% in 2007 and remaining at that level thereafter
   FiscalYear
    
    Amount2007
    
    $
    12008
    
    
    32009
    
    
    52010
    
    
    112011
    
    
    162012 - 2016
    
    
    129
 12




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NOTE 6  SEGMENT INFORMATION
  Third Quarter Ended
    
    
    Nine Months EndedDecember
    
    
    December
    
    
    December
    
    
    December23, 2006
    
    
    24, 2005
    
    
    23, 2006
    
    
    24, 2005Net Sales:Product
    
    $
    12,296
    
    
    $
    11,500
    
    
    $
    32,713
    
    
    $
    30,297Service
    
    
    4,944
    
    
    
    4,733
    
    
    
    14,907
    
    
    
    14,120Total
    
    
    17,240
    
    
    
    16,233
    
    
    
    47,620
    
    
    
    44,417Gross Profit:Product
    
    
    3,370
    
    
    
    2,796
    
    
    
    8,543
    
    
    
    7,380Service
    
    
    941
    
    
    
    1,059
    
    
    
    3,176
    
    
    
    3,689Total
    
    
    4,311
    
    
    
    3,855
    
    
    
    11,719
    
    
    
    11,069Operating Expenses:Product
    
    
    2,209
    
    
    
    2,095
    
    
    
    6,170
    
    
    
    5,794Service
    
    
    1,349
    
    
    
    1,339
    
    
    
    3,940
    
    
    
    4,012Total
    
    
    3,558
    
    
    
    3,434
    
    
    
    10,110
    
    
    
    9,806Operating Income (Loss):Product
    
    
    1,161
    
    
    
    701
    
    
    
    2,373
    
    
    
    1,586Service
    
    
    (408
    )
    
    
    (280
    )
    
    
    (764
    )
    
    
    (323
    )Gain on TPG Divestiture
    
    
    1,544
    
    
    
    
    
    
    
    1,544
    
    
    
    Total
    
    
    2,297
    
    
    
    421
    
    
    
    3,153
    
    
    
    1,263Unallocated Amounts:Other Expense (including interest)
    
    
    229
    
    
    
    132
    
    
    
    533
    
    
    
    451Provision for Income Taxes
    
    
    861
    
    
    
    
    
    
    
    1,050
    
    
    
    Total
    
    
    1,090
    
    
    
    132
    
    
    
    1,583
    
    
    
    451Net Income
    
    $
    1,207
    
    
    $
    289
    
    
    $
    1,570
    
    
    $
    812
 NOTE 7  COMMITMENTS
 Unconditional Purchase Obligation:
  NOTE 8
 VENDOR CONCENTRATION
  13




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##### Table of Contents



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:
 14




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##### Table of Contents



RESULTS OF OPERATIONS
  (Unaudited)
    
    (Unaudited)Third Quarter Ended
    
    Nine Months EndedDecember
    
    December
    
    December
    
    December23, 2006
    
    24, 2005
    
    23, 2006
    
    24, 2005As 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




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##### Table of Contents



THIRD QUARTER ENDED DECEMBER 23, 2006 COMPARED TO THIRD QUARTER ENDED DECEMBER 24, 2005
(dollars in millions):
 Sales:
 Third Quarter EndedDecember
    
    
    December23, 2006
    
    
    24, 2005Net Sales:Product
    
    $
    12.3
    
    
    $
    11.5Service
    
    
    4.9
    
    
    
    4.7Total
    
    $
    17.2
    
    
    $
    16.2
   FY 2007
    
    
    FY 2006Q3
    
    Q2
    
    Q1
    
    
    Q4
    
    Q3
    
    Q2
    
    Q1Product Sales Growth
    
    
    7.0
    %
    
    
    5.3
    %
    
    
    11.7
    %
    
    
    
    4.0
    %
    
    
    16.2
    %
    
    
    13.3
    %
    
    
    5.6
    %
  FY 2007 Third Quarter
    
    
    FY 2006 Third QuarterPercent of
    
    Gross
    
    
    Percent of
    
    GrossNet 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




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##### Table of Contents



FY 2007
    
    
    FY 2006Q3
    
    Q2
    
    Q1
    
    
    Q4
    
    Q3
    
    Q2
    
    Q1Total 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
    %
  FY 2007
    
    
    FY 2006Q3
    
    Q2
    
    Q1
    
    
    Q4
    
    Q3
    
    Q2
    
    Q1Service Sales Growth
    
    
    4.3
    %
    
    
    6.4
    %
    
    
    6.4
    %
    
    
    
    0.0
    %
    
    
    11.9
    %
    
    
    11.9
    %
    
    
    6.8
    %
 Gross Profit:
 Third Quarter EndedDecember
    
    
    December23, 2006
    
    
    24, 2005Gross Profit:Product
    
    $
    3.4
    
    
    $
    2.8Service
    
    
    0.9
    
    
    
    1.1Total
    
    $
    4.3
    
    
    $
    3.9
   17




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##### Table of Contents



FY 2007
    
    
    FY 2006Q3
    
    Q2
    
    Q1
    
    
    Q4
    
    Q3
    
    Q2
    
    Q1Product 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.  FY 2007
    
    
    FY 2006Q3
    
    Q2
    
    Q1
    
    
    Q4
    
    Q3
    
    Q2
    
    Q1Service Gross Profit %
    
    
    18.4
    %
    
    
    22.0
    %
    
    
    24.0
    %
    
    
    
    29.1
    %
    
    
    23.4
    %
    
    
    27.7
    %
    
    
    27.7
    %
 Operating Expenses:
 Third Quarter EndedDecember
    
    
    December23, 2006
    
    
    24, 2005Operating Expenses:Selling, Marketing, and Warehouse
    
    $
    2.2
    
    
    $
    2.3Administrative
    
    
    1.4
    
    
    
    1.2Total
    
    $
    3.6
    
    
    $
    3.5
  18




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Gain on TPG Divestiture:
 Third Quarter EndedDecember
    
    
    December23, 2006
    
    
    24, 2005Gain on TPG Divestiture
    
    $
    1.5
    
    
    $
    
  Other Expense:
 Third Quarter EndedDecember
    
    
    December23, 2006
    
    
    24, 2005Other Expense:Interest Expense
    
    $
    0.1
    
    
    $
    0.1Other Expense
    
    
    0.1
    
    
    
    Total
    
    $
    0.2
    
    
    $
    0.1
  Taxes:
 Third Quarter EndedDecember
    
    
    December23, 2006
    
    
    24, 2005Provision for Income Taxes
    
    $
    0.9
    
    
    $
    
  19




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##### Table of Contents



NINE MONTHS ENDED DECEMBER 23, 2006 COMPARED TO NINE MONTHS ENDED DECEMBER 24, 2005 (dollars in
millions):
 Sales:
 Nine Months EndedDecember
    
    
    December23, 2006
    
    
    24, 2005Net Sales:Product
    
    $
    32.7
    
    
    $
    30.3Service
    
    
    14.9
    
    
    
    14.1Total
    
    $
    47.6
    
    
    $
    44.4
    FY 2007 Nine Months
    
    
    FY 2006 Nine MonthsPercent of
    
    Gross
    
    
    Percent of
    
    GrossNet 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.  20




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##### Table of Contents



Gross Profit:
 Nine Months EndedDecember
    
    
    December23, 2006
    
    
    24, 2005Gross Profit:Product
    
    $
    8.5
    
    
    $
    7.4Service
    
    
    3.2
    
    
    
    3.7Total
    
    $
    11.7
    
    
    $
    11.1
     Operating Expenses:
 Nine Months EndedDecember
    
    
    December23, 2006
    
    
    24, 2005Operating Expenses:Selling, Marketing, and Warehouse
    
    $
    6.1
    
    
    $
    6.2Administrative
    
    
    4.0
    
    
    
    3.6Total
    
    $
    10.1
    
    
    $
    9.8
  21




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##### Table of Contents



Gain on TPG Divestiture:
 Nine Months EndedDecember
    
    
    December23, 2006
    
    
    24, 2005Gain on TPG Divestiture
    
    $
    1.5
    
    
    $
    
  Other Expense:
 Nine Months EndedDecember
    
    
    December23, 2006
    
    
    24, 2005Other Expense:Interest Expense
    
    $
    0.3
    
    
    $
    0.3Other Expense
    
    
    0.3
    
    
    
    0.1Total
    
    $
    0.6
    
    
    $
    0.4
  Taxes:
 Nine Months EndedDecember
    
    
    December23, 2006
    
    
    24, 2005Provision for Income Taxes
    
    $
    1.1
    
    
    $
    
  22




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows.
 Nine Months EndedDecember
    
    December23, 2006
    
    24, 2005Cash (Used in) Provided by:Operating Activities
    
    $
    536
    
    
    $
    2,382Investing Activities
    
    
    (709
    )
    
    
    (604
    )Financing Activities
    
    
    195
    
    
    
    (1,751
    )
  
    
    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
    
    December23, 2006
    
    24, 2005Accounts Payable
    
    $
    4.4
    
    
    $
    5.5Inventory, net
    
    $
    4.1
    
    
    $
    5.6Accounts 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
    
    December23, 2006
    
    24, 2005Net Sales, for the last two fiscal months
    
    $
    12.1
    
    
    $
    11.4Accounts Receivable, net
    
    $
    7.9
    
    
    $
    8.0Days Sales Outstanding (based on 60 days)
    
    
    39
    
    
    
    42
  23




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##### Table of Contents



December
    
    
    December23, 2006
    
    
    24, 2005Term Debt
    
    $
    
    
    
    $
    1.2Revolving Line of Credit
    
    
    4.4
    
    
    
    4.0Capital Lease Obligations
    
    
    
    
    
    
    0.1Total Debt
    
    $
    4.4
    
    
    $
    5.3
 Debt.
   Unconditional Purchase Obligation:
  Exclusive Distribution Agreement:
 24




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##### Table of Contents



OUTLOOK
   25




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 INTEREST RATES
   FOREIGN CURRENCY
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures.
 Changes in Internal Controls over Financial Reporting.
 
 PART II. OTHER INFORMATION
 
 ITEM 6. EXHIBITS
  26




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##### Table of Contents



SIGNATURES
  TRANSCAT, INC.Date: February 6, 2007
    
    /s/ Carl E. SassanoCarl E. SassanoChairman and Chief Executive OfficerDate: February 6, 2007
    
    /s/ John J. ZimmerJohn J. ZimmerVice President of Finance and Chief Financial Officer
 27




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##### Table of Contents



INDEX TO EXHIBITS
 (10)
    
    Material Contracts10.1
    
    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 Officers10.3
    
    Transcat, Inc. Post-Retirement Benefit Plan for Non-Officer Employees(31)
    
    Rule 13a-14(a)/15d-14(a) Certifications31.1
    
    Certification of Chief Executive Officer31.2
    
    Certification of Chief Financial Officer(32)
    
    Section 1350 Certifications32.1
    
    Section 1350 Certifications
 28