UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
~~___________________~~

FORM 10-K
~~___________________~~

(Mark one)

~~(Mark one)~~
☑ ☒		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: March 25, 2023

☐		~~For the fiscal year ended: March 26, 2016~~
		or
☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ~~__________ to __________~~______to
______

Commission File Number: 000-03905

TRANSCAT, INC.

(Exact name of registrant as specified in its charter)

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

35 Vantage Point Drive, Rochester, New York 14624

(Address of principal executive offices) (Zip Code)

(585) 352-7777

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol		Nameofeachexchangeonwhichregistered
Common Stock, $0.50 par value		~~The NASDAQ~~ TRNS		Nasdaq Global Market

Securities registered pursuant to Section 12(g) of the Act:
~~None~~

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes☐ No☑ ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes☐ No☑ ☒

Indicate by check mark whether the ~~registrant~~registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☑ ☒ No☐

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Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes☑ ☒ No☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer”~~filer,” “smaller reporting company” and ~~“smaller reporting~~“emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer☐		Accelerated filer☐ ☒
Non-accelerated filer☐~~(Do not check if a smaller reporting company)~~		Smaller reporting company☑ ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on September ~~25, 2015~~23, 2022 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately ~~$61~~$488.1 million. The market value calculation was determined using the closing sale price of the registrant’s common stock on September ~~25, 2015,~~23, 2022, as reported on ~~The NASDAQ~~the Nasdaq Global Market.

The number of shares of common stock of the registrant outstanding as of June ~~14, 2016~~1, 2023 was ~~6,983,376.~~7,642,916.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement relating to the Annual Meeting of Shareholders to be held on September ~~7, 2016~~6, 2023 have been incorporated by reference into Part III, Items 10, 11, 12, 13 and 14 of this report.

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This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to expectations, estimates, beliefs, assumptions and predictions of future events and are identified by words such as “anticipates,” “believes,” “estimates,” “expects,” ~~“projects,~~“goal,” “seek,” “strategy,” “target,” “intends,” “could,” “may,” ~~“intend”~~“will,” “would,” “tends,” and other similar words. Forward-looking statements are not statements of historical fact and thus are subject to risks, uncertainties and other factors that could cause actual results to differ materially from historical results or those expressed in such forward-looking statements. You should evaluate forward-looking statements in light of important risk factors and uncertainties that may affect our operating and financial results and our ability to achieve our financial objectives. These factors include, but are not limited to, general economic conditions applicable to our business, inflationary impacts, the impact of widespread public health crises, the highly competitive nature of the industries in which we compete and in the nature of our two business segments, the concentration of Service segment customers in the life science and other FDA-regulated and industrial manufacturing industries, the significant competition we face in our Distribution segment, any impairment of our goodwill or intangible assets, tariffs and trade relations, our ability to successfully complete and integrate business acquisitions, cybersecurity risks, the risk of significant disruptions in our information technology systems, our ability to recruit, train and retain quality employees, skilled technicians and senior management, fluctuations in our operating results, our ability to achieve or maintain adequate utilization and pricing rates for our technical service providers, the prices we are able to charge for our services in our Service segment, competition in the rental market, our ability to adapt our technology, reliance on ~~one vendor to~~our enterprise resource planning system, technology updates, supply ~~a significant amount of inventory purchases,~~chain delays or disruptions, the risks related to current and future indebtedness, foreign currency rate fluctuations, risks related to our intellectual property, adverse weather events or other catastrophes or natural disasters, the volatility of our stock price, the relatively low trading volume of our common stock, changes in tax rates, changes in accounting standards, legal requirements and listing standards, and legal and regulatory risks related to our acquisition strategy and the integration of the businesses we acquire, the impact of economic conditions, the highly competitive nature of our two business segments, foreign currency rate fluctuations and cybersecurity risks.international operations. These risk factors and uncertainties are more fully described by us under the heading “Risk Factors” in Item IA. of Part I of this report. You should not place undue reliance on our forward-looking statements. Except as required by law, we undertake no obligation to update, correct or publicly announce any revisions to any of the forward-looking statements contained in this report, whether as a result of new information, future events or otherwise.

Transcat, Inc. (“Transcat”, the ~~“Company”,~~“Company,” “we” or “us”) is a leading provider of accredited calibration ~~and laboratory instrument~~services, enterprise asset management services, and a value-added distributor of professional grade handheld test, measurement and control instrumentation. We are focused on providing ~~our~~ services and products to highly regulated industries, particularly the life science industry, which includes pharmaceutical, biotechnology, medical device and other FDA-regulated businesses. Additional industries served include FAA-regulated businesses, including aerospace and defense industrial manufacturing; energy and utilities, including oil and ~~gas; chemical manufacturing; FAA-regulated business, including aerospace~~gas and ~~defense~~alternative energy; and other industries that require accuracy in their processes, confirmation of the capabilities of their equipment, and for which the risk of failure is very costly.

We conduct our business through two operating segments: service (“Service”) and distribution (“Distribution”). See Note 7 to our Consolidated Financial Statements in this report for financial information for these segments. We concentrate on attracting new customers in each segment, retaining existing customers and on cross-selling to ~~existing~~ customers to increase our total revenue. We serve approximately ~~17,000 and 21,000~~30,000 customers through our Service and Distribution segments, ~~respectively,~~ with approximately ~~30%~~20% to 25% of those customers transacting with us through both of our business segments.

Through our Service segment, we offer calibration, repair, inspection, analytical qualifications, preventative maintenance, consulting and other related services, a majority of which are processed through our proprietary asset management system, CalTrak® ~~(“CalTrak®”)~~and our online customer portal, C3®. Our Service model is flexible, and we cater to our customers’ needs by offering a variety of services and solutions including permanent and periodic onsite services, mobile calibration services, pickup and delivery and in-house services. As of the end of our fiscal year ended March ~~26, 2016~~25, 2023 (“fiscal year ~~2016”~~2023”), we operated ~~twenty~~twenty-seven calibration service centers (“Calibration Service Centers”) strategically located across the United States, Puerto Rico, Canada and ~~Canada.~~ Ireland. We also serve our customers onsite at their facilities for daily, weekly or longer-term periods. In addition, we have several imbedded customer-site locations that we refer to as “client-based labs,” where we provide calibration services, and in some cases other related services, exclusively for the customer and where we reside and work every day. We also have a fleet of mobile calibration laboratories that can provide service at customer sites which may not have the space or utility capabilities we require to service their equipment.

Through the Company’s acquisition strategy, we have been focused on building out our Services segment by entering adjacent and complimentary markets. This has been demonstrated by the acquisitions of Elite Calibration, LLC ("Elite"), Galium Limited (d/b/a Complete Calibrations) ("Complete Calibrations"), e2b Calibration ("e2b"), and Charlton Jeffmont Inc., Raitz Inc. and Toolroom Calibration Inc. d/b/a Alliance Calibration ("Alliance") in fiscal year 2023, and the acquisitions of Tangent Labs, LLC ("Tangent"), Cal OpEx Limited (d/b/a Transcat Ireland) which owns all of the issued and outstanding capital stock of its U.S. based subsidiary, Cal OpEx Inc. (d/b/a NEXA EAM), a Delaware corporation (collectively, "NEXA"), and Upstate Metrology Inc. ("Upstate Metrology") in our fiscal year ended March 26, 2022 ("fiscal year 2022").

NEXA provides asset management services to the biopharmaceutical industry by leveraging its six service tracks: (i) calibration, (ii) maintenance and spare, (iii) reliability, (iv) computerized maintenance management systems solutions (“CMMS”), (v) quality and compliance, and (vi) validation. By delivering these services, NEXA is able to provide unique value to their end customers in managing their asset portfolios, avoiding asset downtime and helping to accelerate delivery of their life changing products to market, ultimately driving significant cost savings and improved reliability. This NEXA suite of services, combined with the existing Transcat service offerings, provides a very comprehensive and robust value proposition to existing and new customers, which allows us to manage the complexity that is tied to doing business in these highly regulated industries.

All of our Calibration Service Centers have obtained ISO/IEC ~~17025~~17025:2017 scopes of ~~accreditation, which are believed to be among the best in the industry.~~accreditation. Our accreditations are the cornerstone of our quality program, which we believe is among the best in the industry. Our dedication to quality is highly valued by businesses that operate in the industries we serve, particularly those in life science and other ~~FDA-regulated~~regulated industries, and our accreditations provide our customers with confidence that they will receive a consistent and uniform service, regardless of which of our service centers completes the service.

Through our Distribution segment, we ~~market,~~ sell and rent national and proprietary brand instruments to customers globally. ~~Our e-commerce-focused~~Through our website, in-house sales team and ~~product catalog (the “Master Catalog”)~~printed and digital marketing materials, we offer access to more than ~~100,000~~140,000 test, measurement and control instruments, including products from approximately ~~540~~550 leading ~~manufacturers.~~brands. Most instruments we sell and rent require calibration service to ensure that they maintain the most precise measurements. By having the capability to calibrate these instruments at the time of sale and at regular post-sale intervals, we can give customers a value-added service that most of our competitors are unable to provide. Calibrating before shipping means the customer can place their instruments into service immediately upon receipt, reducing downtime. Other value-added options we offer through our Distribution segment include equipment kitting (which is especially valued in the power generation sector), equipment rentals ~~for varied lengths of time~~ and used equipment ~~procurement, refurbishing and resale to meet various customer needs.~~sales.

~~We depend on manufacturers~~The impact of widespread public health crises, pandemics or other epidemics is difficult to ~~supply inventory to our Distribution segment~~predict and rely on one vendor to supply a significant amount of our inventory purchases. If our vendor fails to provide desired products to us, increases prices, or fails to timely deliver products, our revenue and gross profit could suffer. A significant amount of our inventory purchases are made from one vendor, Fluke. Our reliance on this vendor leaves us vulnerable to having an inadequate supply of required products, price increases, late deliveries, and poor product quality. Like other distributors in our industry, we occasionally experience supplier shortages and are unable to purchase our desired volume of products. If we are unable to enter into and maintain satisfactory distribution arrangements with leading manufacturers, if we are unable to maintain an adequate supply of products, or if manufacturers do not regularly invest in, introduce to us, and/or make new products available to us for distribution, our Distribution segment sales could suffer considerably. Finally, we cannot provide any assurance that particular products, or product lines, will be available to us, or available in quantities sufficient to meet customer demand. This is of particular significance to our Distribution segment business because the products we sell are often only available from one source. Any limits to product access could materially and adversely affect our ~~Distribution segment business.~~business and results of operations.Any adverse widespread public health developments in locations where we conduct business, as well as any governmental restrictive measures implemented to control such outbreaks and consumer responses to such outbreaks, could have a material adverse impact on our business and results of operations. These impacts, which are highly uncertain and cannot be accurately predicted, could be significant and long term. Further, any actions taken to mitigate any health crises could lead to an economic recession. For example, the COVID-19 pandemic and the efforts to control it caused significantly increased economic uncertainty, inflationary pressure in the U.S. and globally, supply chain disruptions, volatility in the capital markets, a decline in consumer confidence, changes in consumer behavior, significant economic deterioration, and an increasingly competitive labor market.

The ultimate impact of the COVID-19 pandemic or any other widespread public health crisis on our business and results of operations will depend on, among other things, the severity and length of the health crisis, the duration, effectiveness and extent of the mitigation measures and actions designed to contain the outbreak, the emergence, contagiousness and threat of new and different strains of the disease, the availability and efficacy of vaccines and effective treatments, public acceptance of vaccines and treatments for the disease, if any, changes in customer and consumer behavior as a result of the crisis, as well as the resulting economic conditions and how quickly and to what extent normal economic and operating conditions resume, all of which are highly uncertain. Such extraordinary events and their aftermaths can cause investor fear and panic, which could further materially and adversely affect our operations, the economies in which we operate, and the financial markets generally in ways that cannot necessarily be predicted.

The effects of the COVID-19 pandemic, or any future public health crisis, and mitigation measures taken in response, could have a material and adverse impact on our business and results of operations and may amplify many of the other risk factors disclosed elsewhere in this "Item 1A. Risk Factors."

~~Volatility~~The industries in which we compete are highly competitive, and we may not be able to compete successfully. Within our Service segment, we provide calibration services and compete in an industry that is highly fragmented and is composed of companies ranging from internationally recognized and accredited corporations to non-accredited sole proprietors, resulting in a tremendous range of service levels and capabilities. Also, within our Service segment, we provide compliance services and compete in an industry that is composed of both small local and regional service providers and large multi-national companies who are also OEMs. Within our Service segment, some of our larger competitors may have broader service capabilities and may have greater name recognition than us. Some manufacturers of the products we sell may also offer calibration and compliance services for their products.

Within our Distribution segment, we compete with numerous companies, including several major manufacturers and distributors. Most of our products are available from several sources and our customers tend to have relationships with several distributors. Competitors in the ~~oil~~product distribution industry could also obtain exclusive rights to market particular products, which we would then be unable to market. Manufacturers could also increase their efforts to sell directly to end-users and ~~gas industry~~bypass distributors like us. Industry consolidation among distributors, the unavailability of products, whether due to our inability to gain access to products or interruptions in supply from manufacturers, or the emergence of new competitors could also increase competition and adversely affect our business or results of operations.

In each of the industries in which we compete, some of our competitors have greater financial and other resources than we do, which could allow them to compete more successfully. In the future, we may be unable to compete successfully and competitive pressures may reduce our sales.

Our Service segment has a concentration of customers in the life science and ~~could continue to negatively impact~~other FDA-regulated and industrial manufacturing industries. A number of our ~~operating results.~~ AService segment customers operate in the life science, pharmaceutical and other FDA-regulated or industrial manufacturing industries. This concentration of our customer base affects our overall risk profile, since a significant portion of our ~~products~~customers would be similarly affected by changes in economic, political, regulatory, and ~~services~~other industry conditions. An abrupt or unforeseen change in conditions in these industries could adversely affect customer ~~base is directly or indirectly related to the oil and gas industry. As a result,~~ demand for some of our products is dependent on the level of expenditures by the oil and gas industry. In addition to the more significant impact on our Distribution segment, an extended downturn in the oil and gas industry or continued volatility in oil and gas prices could impact customers’ demand for some of our services, ~~(generally excluding life sciences, our largest industry customer sector),~~ which could have a material adverse effect on our financial ~~condition, results of operations and cash flows.~~results.

~~Our future success may be affected by~~We face significant competition in our ~~current and future indebtedness.~~ Under our revolving credit facility, as of March 26, 2016, we owed $19.1 million to our secured creditor, a commercial bank. We borrowed $10.0 million on April 1, 2016 via a term loan to fund the acquisition of Excalibur and provide us additional working capital. We may borrow additional funds in the future to support our growth and working capital needs. We are required to meet financial tests on a quarterly basis and comply with other covenants customary in secured financings. Although we believe that we will continue to comply with such covenants, if we do not remain in compliance with such covenants, our lender may demand immediate repayment of amounts outstanding. Changes in interest rates may have a significant effect on our payment obligations and operating results. Furthermore, we are dependent on credit from manufacturers of our products to fund our inventory purchases. If our debt burden increases to high levels, such manufacturers may restrict our credit. Our cash requirements will depend on numerous factors, including the rate of growth of our revenues, the timing and levels of products purchased, payment terms, and credit limits from manufacturers, the timing and level of our accounts receivable collections and our ability to manage our business profitably. Our ability to satisfy our existing obligations, whether or not under our secured credit facility, will depend upon our future operating performance, which may be impacted by prevailing economic conditions and financial, business, and other factors described in this report, many of which are beyond our control.

~~The relatively low trading volume of our common stock may limit your ability to sell your shares.~~Although our shares of common stock are listed on The NASDAQ Global Market, we have historically experienced a relatively low trading volume. If our low trading volume continues in the future, holders of our shares may have difficulty selling shares of our common stock in the manner or at a price that they desire.

~~If significant existing shareholders sell large numbers of shares of our common stock, our stock price could decline.~~ The market price of our common stock could decline if a large number of our shares are sold in the public market by our existing shareholders or holders of stock options or as a result of the perception that these sales could occur. Due to the low trading volume of our common stock, the sale of a large number of shares of our common stock may significantly depress the price of our common stock.

~~We expect that our quarterly results of operations will fluctuate. Such fluctuation could cause our stock price to decline.~~~~A large portion of our expenses for our Service~~Distribution segment, including ~~expenses for facilities, equipment~~from suppliers and ~~personnel are relatively fixed. Accordingly, if revenues decline or do not grow as we anticipate, we~~web-based distributors. We may not be able to ~~correspondingly reduce~~compete successfully. We face substantial and increased competition throughout the world, especially in our ~~operating expenses in any particular quarter. Our quarterly revenues~~Distribution segment. The competition is changing, with certain of our vendors engaging directly with customers and ~~operating results have fluctuated~~web-based distributors continuing to be a presence with increasing their market share. Some of our competitors are much larger than us. Changes in the ~~past~~competitive landscape pose new challenges that could adversely affect our ability to compete. Entry or expansion of other vendors into this market may establish competitors that have larger customer bases and ~~are likely~~substantially greater financial and other resources with which to ~~do so in the future. Historically,~~pursue marketing and distribution of products. Their current customer base and relationships, as well as their relationships and ability to negotiate with manufacturers, may also provide them with a competitive advantage. Additionally, our ~~fiscal third~~vendors who decide to sell directly to customers, may choose to not to sell to us or to provide products to us on less favorable and ~~fourth quarters have been stronger than our fiscal first and second quarters due to industrial operating cycles. Fluctuations in industrial demand for products we sell and services we provide~~more costly terms, any of which could ~~cause our revenues and operating results to fluctuate. If our operating results in some quarters fail to meet the expectations of stock market analysts and investors, our stock price may decline.~~

~~Our stock price may be volatile.~~ The stock market, from time to time, has experienced significant price and volume fluctuations that are both related and unrelated to the operating performance of companies. Our stock may be affected by market volatility and by our own performance. The following factors, among others, may have a ~~significant~~material and adverse impact on our results of operations. If we are unable to effectively compete with our current and future competitors, our ability to sell products could be harmed and could result in a negative impact on our Distribution segment. Any erosion of our competitive position could have a material adverse effect on ~~the market price of~~ our ~~common stock:~~

~~Our~~ business, ~~acquisitions or future business acquisition efforts, which are important to our growth, may not be successful, which may limit our growth or adversely affect our~~ results of operations, and financial condition.Business acquisitions have been an important part of our growth to date. As part of our business strategy, we may make additional acquisitions of companies that could complement or expand our business, augment our market coverage, provide us with important relationships or otherwise offer us growth opportunities. If we identify an appropriate acquisition candidate, we may not be able to successfully negotiate terms or finance the acquisition. If we fail to successfully acquire businesses, our growth and results of operations could be adversely affected.

~~We may not successfully integrate business acquisitions.~~During fiscal year 2016 we acquired five businesses and completed a sixth acquisition just after the end of fiscal year 2016. If we fail to accurately assess and successfully integrate any recent or future business acquisitions, we may not achieve the anticipated benefits, which could result in lower revenues, unanticipated operating expenses, reduced profitability and dilution of our book value per share. Successful integration involves many challenges, including:

~~In addition, an acquisition could adversely impact cash flows and/or operating results, and dilute shareholder interests, for many reasons, including:~~

~~If the integration of any or all of our acquisitions or future acquisitions is not successful, it could have a material adverse impact on our operating results and stock price.~~

Any impairment of goodwill or ~~other~~ intangible assets could negatively impact our results of operations.Our goodwill and ~~other~~ intangible assets are subject to an impairment test on an annual basis and are also tested whenever events and circumstances indicate that goodwill and/or intangible assets may be impaired. Any excess goodwill and/or indefinite-lived intangible assets value resulting from the impairment test must be ~~written off~~written-off in the period of determination. Intangible assets (other than goodwill and indefinite-lived intangible assets) are ~~generally~~ amortized over the useful life of such assets. In addition, from time to time, we may acquire or make an investment in a business that will require us to record goodwill based on the purchase price and the value of the acquired tangible and intangible assets. We may subsequently experience unforeseen issues with the businesses we acquire, which may adversely affect the anticipated returns of the business or value of the intangible assets and trigger an evaluation of the recoverability of the recorded goodwill and intangible assets for such business. Future determinations of significant write-offs of goodwill or intangible assets because of an impairment test or any accelerated amortization of other intangible assets could have a material negative impact on our results of operations and financial condition. We have completed our annual impairment analysis for goodwill and indefinite-lived intangible assets, in accordance with the applicable accounting guidance, and have concluded that we do not have any impairment of goodwill or other intangible assets as of March 26, 2016.

Tariffs imposed by the U.S. and other countries, as well as changing trade relations, could have a material adverse effect on our business and results of operations. Changes in U.S. and foreign governments’ trade policies have resulted in, and may continue to result in, tariffs on imports into and exports from the U.S. Tariffs on certain products can increase our costs of doing business. If we are unable to recover these costs, our profit margins may be negatively impacted. Diminished trade relations between the U.S. and other countries, as well as any escalation of tariffs, could have a material adverse effect on our financial performance and results of operations.

We may not successfully integrate business acquisitions. We completed four acquisitions during fiscal year 2023 and three acquisitions during fiscal year 2022. If we fail to accurately assess and successfully integrate any recent or future business acquisitions, we may not achieve the anticipated benefits, which could result in lower revenues, unanticipated operating expenses, reduced profitability and dilution of our book value per share. Successful integration of acquisitions involves many challenges, including:

In addition, an acquisition could adversely impact cash flows and/or operating results, and dilute shareholder interests, for many reasons, including:

If the integration of any or all of our acquisitions or future acquisitions is not successful, it could have a material adverse impact on our operating results and stock price.

Our future business acquisition efforts may not be successful, which may limit our growth or adversely affect our results of operations, and financing of any future acquisitions ~~we might make may~~could result in shareholder dilution ~~to your stock ownership~~ and/or ~~could~~ increase our ~~leverage and our risk of defaulting on our bank debt.~~leverage. ~~Our business strategy includes expansion into new markets and enhancement~~Business acquisitions are an important part of our ~~position in existing markets, including through acquisitions.~~growth strategy. If we identify an appropriate acquisition candidate, we may not be able to successfully negotiate terms or finance the acquisition. If economic downturns or other matters of national or global concern continue for an extensive period of time or recur, our ability to pursue and consummate potential acquisitions could be materially adversely affected. In ~~order~~addition, to successfully complete targeted acquisitions, we may issue additional equity securities that could dilute ~~your stock ownership. We~~our stockholders’ ownership, or we may ~~also~~ incur additional debt, ~~if we acquire another company,~~ which could ~~significantly~~ increase our leverage and our risk of default under our existing credit facility. If we fail to successfully acquire businesses, our growth and results of operations could be materially and adversely affected.

~~Adverse changes in general economic conditions or uncertainty about future economic conditions~~Cybersecurity incidents could adversely affect ~~us.~~our business by causing a disruption to our operations, a compromise or corruption of our confidential information and/or damage to our business relationships, all of which could negatively impact our business, results of operations or financial condition. We rely extensively on information technology (“IT”) systems, some of which are provided by third parties, to support our business activities, including for orders and the storage, processing and transmission of our electronic, business-related, information assets used in or necessary to conduct business. The data we store and process may include customer payment information, personal information concerning our employees, confidential financial information and other types of sensitive business-related information. Numerous and evolving cybersecurity threats pose potential risks to the security of our IT systems, networks and services, as well as the confidentiality, availability and integrity of our data. Some of our office personnel work in remote environments which may exacerbate various cybersecurity risks to our business, including an increased risk of phishing and other social engineering attacks, and an increased risk of unauthorized dissemination of sensitive personal, proprietary or other confidential information. Global cybersecurity threats can range from uncoordinated individual attempts to gain unauthorized access to our IT systems to sophisticated and targeted measures known as advanced persistent threats. The techniques used in these attacks change frequently and may be difficult to detect for periods of time and we may face difficulties in anticipating and implementing adequate preventative measures. While we employ comprehensive measures to prevent, detect, address and mitigate these threats (including access controls, data encryption, vulnerability assessments, management training, continuous monitoring of our IT networks and systems and maintenance of backup and protective systems), cybersecurity incidents, depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption or unavailability of critical data or proprietary information and the disruption of business operations. The potential consequences of a material cybersecurity incident include reputational damage, compromised employee, customer, or third-party information, litigation with third parties, regulatory actions, and increased cybersecurity protection and remediation costs, which in turn could adversely affect our business and results of operations. We maintain insurance intended to cover certain cybersecurity events, but such insurance may not cover all risks and losses that we experience. In addition, the laws and regulations governing security of data on IT systems and otherwise held by companies is evolving and adding layers of complexity in the form of new requirements and increasing costs of attempting to protect IT systems and data and complying with new cybersecurity regulations.

If we experience a significant disruption in, or breach in security of, our IT systems, or if we fail to implement new systems and software successfully, our business could be adversely affected. Our IT systems may be susceptible to damage, disruptions or shutdowns due to power outages, hardware failures, telecommunication failures, user errors, catastrophes or other unforeseen events. Our IT systems also may experience interruptions, delays or cessations of service or produce errors in connection with system integration, software upgrades or system migration work that takes place from time to time. In addition, technology resources may be strained due to our remote users. If we were to experience a prolonged system disruption in the IT systems that involve our interactions with customers or suppliers, it could result in the loss of sales and customers and significant incremental costs, which could adversely affect our business.

Our revenue and ability to achieve our stated corporate objectives depends on our senior management and our ability to retain recruit, train and retain quality employees. Our success is dependent on our senior management and our ability to attract, retain and motivate qualified personnel, especially skilled service technicians. Competition for senior management is intense, and we may not be successful in attracting and retaining key personnel. Qualified skilled service technicians are in high demand and are subject to competing offers. The ability to meet our labor needs while controlling costs associated with hiring and training new employees is subject to external factors such as unemployment levels and prevailing wage rates. The loss of services of any member of our senior management team or key employees, and the ~~risks arising from adverse changes in general economic market conditions. Uncertainty about future economic conditions~~inability to attract and retain other qualified personnel, especially skilled service technicians, could ~~negatively~~ affect our ~~current~~ability to achieve our stated corporate objectives and ~~prospective customers causing them to delay the purchase of necessary services or test and measurement instruments. Poor economic conditions~~ could ~~harm~~adversely impact our business ~~financial condition, operating~~and results ~~and cash flow.~~of operations.

~~The industries in which~~We expect that our quarterly results of operations will fluctuate. Such fluctuations could cause our stock price to decline. A large portion of our expenses for our Service segment, including expenses for facilities, equipment and personnel are relatively fixed. Accordingly, if revenues decline or do not grow as we ~~compete are highly competitive, and~~anticipate, we may not be able to ~~compete successfully.~~correspondingly reduce our expenses in any particular quarter. Our quarterly revenues and operating results have fluctuated in the past and are likely to do so in the future. Historically, our fiscal third and fourth quarters have been stronger than our fiscal first and second quarters due to industrial operating cycles. Fluctuations in industrial demand for products we sell and services we provide could cause our revenues and operating results to fluctuate. If our operating results in some quarters fail to meet the expectations of stock market analysts and investors, our stock price may decline.

The profitability of our subsidiary, NEXA, depends to a large extent on our ability to achieve or maintain adequate utilization and pricing rates for our technical service providers. ~~Within~~In our Service segment ~~we provide calibration~~our subsidiary, NEXA, provides all of its services and compete in an industry that is highly fragmented and is composed of companies ranging from internationally recognized and accredited corporations to non-accredited, sole proprietors, resulting in a tremendous range of service levels and capabilities. Also, within our Service segment, we provide compliance services and compete in an industry that is composed of both small local and regional service providers and large multi-national companies who are also OEMs. Within our Service segment, some of our larger competitors may have broader service capabilities and may have greater name recognition than us. Some manufacturers of the products we sell may also offer calibration and compliance services for their products.

Within our Distribution segment, we compete with numerous companies, including several major manufacturers and distributors. Most of our products are available from several sources and our customers tend to have relationships with several distributors. Competitors in the ~~product distribution industry could also obtain exclusive rights~~technical, consulting and staffing solutions market by providing services to market particular products, which we would then be unable to market. Manufacturers could also increase their efforts to sell directly to end-users and bypass distributors like us. Industry consolidation among distributors, the unavailability of products, whether due to our inability to gain access to products or interruptions in supply from manufacturers, or the emergence of new competitors could also increase competition and adversely affect our business or results of operations.

~~Our Service segment has a high concentration of~~improve asset management programs for customers in the life science, ~~and other FDA-regulated and industrial manufacturing industries.~~~~A large number of our Service segment customers operate in the~~ pharmaceutical and other FDA-regulated or industrial manufacturing industries. ~~This concentration~~The profitability of NEXA depends in part on ensuring that our technical service providers maintain adequate utilization rates (i.e., the percentage of our ~~customer base affects our overall risk profile, since a significant portion of our customers will be similarly~~provider’s working hours devoted to billable activities). Our utilization rates are affected by ~~changes in economic, political, regulatory,~~a number of factors, including:

If the utilization rate for our technical service providers declines, our revenues, profit margin and ~~other industry conditions. We anticipate that~~profitability could decline, and our results of operations could be materially adversely affected.

The profitability of our Service segment, ~~will continue~~including the NEXA business, depends in part on the prices we are able to ~~grow~~charge for our services. The prices we charge for our services, including the NEXA business, are affected by a number of factors, including:

If we are unable to achieve and ~~comprise~~maintain adequate rates for our services, our profit margin and profitability could decline, and our results of operations could be materially adversely affected.

If we do not effectively compete in the rental test and measurement equipment market, our operating results may be adversely affected. We compete in the rental market on the basis of a ~~greater percentage~~number of factors, including equipment availability, price, service and reliability. Some of our ~~total revenue, which~~competitors may offer similar equipment for rent at lower prices and may offer more extensive servicing, or financing options. In addition, if the supply of rental equipment available on the market significantly increases, demand for and pricing of our rental products could ~~increase~~be adversely impacted lowering our ~~exposure~~gross margins on rentals. Further, customers confronting competing budget priorities and more limited resources could lead to ~~fluctuations~~less demand for rental equipment and increased pressure on pricing. Failure to adequately forecast the adoption of and demand for equipment may cause us not to meet our customers’ rental equipment requirements and may adversely affect our operating results.

If we fail to adapt our technology to meet customer needs and preferences, the demand for our products and services may diminish. Our future success will depend on our ability to develop services and solutions that keep pace with technological change, evolving industry standards and changing customer preferences in the markets we serve. For example, we sell our products and services to customers in several industries that may experience rapid technological changes, new product introductions, and evolving industry standards, including the life science, pharmaceutical and other FDA-regulated or industrial manufacturing industries. ~~An abrupt~~We cannot be sure that we will be successful in adapting existing or ~~unforeseen change~~developing new technology or services in ~~conditions in these industries could adversely affect customer demand for our services, which could have~~ a ~~material adverse effect on our financial results.~~

~~Competition in our Distribution segment is changing with an increase in web-based distributors. We may not~~timely or cost-effective manner or that the solutions we do develop will be ~~able to compete successfully.~~We face substantial and increased competition throughout the world, especially in our Distribution segment where, over the last several fiscal quarters, we have experienced a gradual decline in sales. The competition is changing, with web-based distributors becoming more prevalent and increasing their market share. Some of our competitors are much larger than us. Changessuccessful in the ~~competitive landscape pose new challenges that~~marketplace. Our failure to keep pace with changes in technology, industry standards and customer preferences in the markets we serve could ~~adversely affect~~diminish our ability to ~~compete. Entry or expansion of other vendors into this market may establish competitors that have larger customer bases~~retain and ~~substantially greater financial~~attract customers and other resources with which to pursue marketing and distribution of products. Their current customer base and relationships, as well as their relationships and ability to negotiate with manufacturers, may also provide them with a competitive advantage. If we are unable to effectively compete with our current and future competitors, our ability to sell products could be harmed and could result in a negative impact on our Distribution segment. Any erosion ofretain our competitive position, which could ~~have a material adverse effect on~~adversely impact our business and results of ~~operations, and financial condition.~~operations.

~~Our enterprise resource planning system is aging and we may experience issues from any implementation of a new enterprise resource planning system.~~We have an enterprise resource planning system (“ERP” or “Application Plus”) to assist with the collection, storage, management and interpretation of data from our business activities to support future growth and to integrate significant processes. Although we use current versions of software and have support agreements in place, due to the age of our ERP, we anticipate that a new ERP will be required to be implemented in the future. ERP implementations are complex and time-consuming and involve substantial expenditures on system software and implementation activities, as well as changes in business processes. Our ERP system is critical to our ability to accurately maintain books and records, record transactions, provide important information to our management and prepare our consolidated financial statements. ERP implementations also require the transformation of business and financial processes in order to reap the benefits of the ERP system; any such transformation involves risks inherent in the conversion to a new computer system, including loss of information and potential disruption to our normal operations. Any disruptions, delays or deficiencies in the design and implementation of a new ERP system could adversely affect our ability to process orders, provide services and customer support, send invoices and track payments, fulfill contractual obligations or otherwise operate our business. Additionally, if the ERP system does not operate as intended, the effectiveness of our internal control over financial reporting could be adversely affected or our ability to assess it adequately could be delayed.

We rely on our ~~CalTrak®~~CalTrak®,Application Plus (our ~~ERP)~~enterprise resource planning system) and other management information systems for inventory management, distribution, workflow, accounting and other functions. If our ~~CalTrak®~~CalTrak®,Application Plus ~~and~~or other management information systems fail to adequately perform these functions, experience an interruption in their operation or a security breach, our business and results of operations could be adversely affected.The efficient operation of our business depends on our management information systems. We rely on our CalTrak®, Application Plus and other management information systems to effectively manage accounting and financial functions, customer service, warehouse management, order entry, order fulfillment, inventory replenishment, documentation, asset management, and workflow. Our management information systems are vulnerable to damage or interruption from computer viruses or hackers, natural or man-made disasters, vandalism, terrorist attacks, power loss, or other computer systems, internet, telecommunications or data network failures. Any such interruptions to our management information systems could disrupt our business and could result in decreased revenues, increased overhead costs, excess inventory and product shortages, causing our business and results of operations to suffer. In addition, our management information systems are vulnerable to security breaches. Our security measures or those of our third-party service providers may fail to detect or prevent such security breaches. Security breaches could result in the unauthorized publication of our confidential business or proprietary information, the unauthorized release of customer, vendor, or employee data and payment information, the violation of privacy or other laws, and the exposure to litigation, any of which could harm our business and results of operations.

IfOur enterprise resource planning system (“ERP”) is aging and may not be capable of integrating management information systems that we ~~fail~~use or are used by companies we acquire, and we may experience issues from any implementation of a new ERP or be required to ~~adapt~~operate some management information systems separately from our ~~technology~~ERP. We have an ERP to ~~meet customer needs~~assist with the collection, storage, management and ~~preferences,~~interpretation of data from our business activities to support future growth and to integrate significant processes. Although we use current versions of software and have support agreements in place, due to the ~~demand for~~age of our ~~products~~ERP it may not be capable of integrating management information systems that we use or are used by companies we acquire. We anticipate that a new ERP will be required to be implemented sometime in the future. ERP implementations are complex and ~~services may diminish.~~time-consuming and involve substantial expenditures on system software and implementation activities, as well as changes in business processes. Our ~~future success will depend on~~ERP system is critical to our ability to ~~develop services~~accurately maintain books and ~~solutions that keep pace with technological change, evolving industry standards~~records, record transactions, provide important information to our management and ~~changing customer preferences~~prepare our consolidated financial statements. ERP implementations also require the transformation of business and financial processes in order to reap the benefits of the ERP system; any such transformation involves risks inherent in the ~~markets we serve. We cannot be sure that we will be successful in adapting existing~~conversion to a new computer system, including loss of information and potential disruption to our normal operations. Any disruptions, delays or ~~developing new technology or services in a timely or cost-effective manner or that the solutions we do develop will be successful~~deficiencies in the ~~marketplace. Our failure to keep pace with changes in technology, industry standards~~design and ~~customer preferences in the markets we serve~~implementation of a new ERP system could ~~diminish~~adversely affect our ability to ~~retain~~process orders, provide services and ~~attract~~customer support, send invoices and track payments, fulfill contractual obligations or otherwise operate our business. Additionally, if the ERP system does not operate as intended, the effectiveness of our internal control over financial reporting could be adversely affected or our ability to assess it adequately could be delayed.

We depend on manufacturers to supply inventory to our Distribution segment and if our vendors fail to provide desired products to us, increase prices, or fail to timely deliver products, or if supply chain delays, interruptions, or product shortages occur, our revenue and gross profit could suffer. Similar to other distributors in our industry, we occasionally experience supplier shortages and are unable to purchase our desired volume of products. Our ability to offer a wide variety of products to our customers is dependent upon our ability to obtain adequate product supply from manufacturers and other suppliers. Any disruption in our ~~competitive position, which~~sources of supply, particularly of the most commonly sold items, could result in a loss of revenues, reduced margins, and damage to our relationships with customers. Supply shortages may occur as a result of unanticipated increases in demand or difficulties in production or delivery. In addition, we may be adversely impacted by disruptions within our supply chain network. Such disruptions may result from weather-related events, natural disasters, international trade disputes or trade policy changes or restrictions, tariffs or import-related taxes, third-party strikes, lock-outs, work stoppages or slowdowns, shortages of supply chain labor and truck drivers, shipping capacity constraints, military conflicts, acts of terrorism, public health issues (including pandemics or quarantines), civil unrest or other factors beyond our control. For example, in fiscal year 2023, our supply chains have been and may continue to be negatively impacted by the COVID-19 pandemic and general economic factors such as rising inflation. When shortages occur, our suppliers often allocate products among distributors. The loss of, or a substantial decrease in the availability of, products from our suppliers or the loss of key supplier arrangements could adversely impact our financial condition, operating results, and cash flows, as well as our ability to benefit from ongoing supply chain initiatives.

Due to current global supply chain disruptions, we may experience increased difficulties in obtaining products at stable pricing levels. As a result, we may need to restructure or change some of our product lines in the future. We cannot provide any assurance that particular products, or product lines, will be available to us, or available in quantities sufficient to meet customer demand. If we are unable to enter into and maintain satisfactory distribution arrangements with leading manufacturers, if we are unable to maintain an adequate supply of products, or if manufacturers do not regularly invest in, introduce to us, and/or make new products available to us for distribution, our Distribution segment sales could suffer materially. This is of particular significance to our Distribution segment business because the products we sell are often only available from one source. Any limits to product access could materially and adversely affect our Distribution segment business.

Our future success may be affected by our current and future indebtedness. Under our credit agreement, as of March 25, 2023, we owed $49.1 million to our secured creditor, a commercial bank, including $6.4 million borrowed under a $15.0 million term loan to fund acquisitions and provide additional working capital. We may borrow additional funds in the future to support our growth and working capital needs. We are required to meet financial tests on a quarterly basis and comply with other covenants customary in secured financings. Although we believe that we will continue to comply with such covenants, if we do not remain in compliance with such covenants, our lender may demand immediate repayment of amounts outstanding. Furthermore, we are dependent on credit from manufacturers of our products to fund our inventory purchases. If our debt burden increases to high levels, such manufacturers may restrict our credit. Our cash requirements will depend on numerous factors, including the rate of growth of our revenues, the timing and levels of products purchased, payment terms, and credit limits from manufacturers, the timing and level of our accounts receivable collections and our ability to manage our business profitably. Our ability to satisfy our existing obligations, whether or not under our secured credit facility, will depend upon our future operating performance, which may be impacted by prevailing economic conditions and financial, business, and ~~results~~other factors described in this report, many of ~~operations.~~which are beyond our control.

We face risks associated with foreign currency rate fluctuations.We currently transact a portion of our business in foreign currencies, namely the Canadian ~~dollar.~~dollar and the Euro. During fiscal years ~~2016~~2023 and ~~2015, less than~~2022, approximately 10% of our total revenues were denominated in Canadian ~~dollars.~~

dollars and Euros. Conducting business in currencies other than U.S. dollars subjects us to fluctuations in currency exchange rates that could have a negative impact on our reported operating results. Fluctuations in the value of the U.S. dollar relative to the Canadian dollar ~~impacts~~and the Euro impact our revenues, cost of revenues and operating margins and result in foreign currency transaction gains and losses. During fiscal ~~years 2016 and 2015,~~year 2023, the value of the U.S. dollar relative to one Canadian dollar and to one Euro ranged from ~~1.20~~1.25 to ~~1.46~~1.39 and from ~~1.06~~0.90 to ~~1.28,~~1.04, respectively.

We continually utilize short-term foreign exchange forward contracts to reduce the risk that ~~our~~future earnings denominated in Canadian dollars would be adversely affected by changes in currency exchange rates. However, this strategy does not eliminate our exposure. If there is a significant or prolonged downturn in the Canadian dollar or the Euro, it could have an adverse impact on our business and financial condition.

~~If we fail~~Our inability to ~~attract qualified personnel, we may not be able to achieve~~adequately enforce and protect our ~~stated corporate objectives.~~~~Our ability to manage our anticipated growth, if realized, effectively depends on~~intellectual property or defend against assertions of infringement could prevent or restrict our ability to ~~attract and retain highly qualified executive officers and technical personnel. If we fail to attract and retain qualified individuals, we will not be able to achieve our stated corporate objectives.~~

~~Our revenue depends~~compete. We rely on retaining capable sales personnel and highly skilled service technicians as well as maintaining existing relationships with key customers, key vendors and manufacturers of the products that we distribute.~~Our future operating results depend on our ability~~intellectual property in order to maintain ~~satisfactory relationships with qualified sales personnel and skilled service technicians as well as key customers, vendors and manufacturers who appreciate~~a competitive advantage. Our inability to defend against the ~~value~~unauthorized use of these assets could have an adverse effect on our ~~services. If we fail to maintain our existing relationships with such persons or fail to acquire relationships with such key persons in the future, our business and~~ results of operations and financial condition. Litigation may be ~~adversely affected.~~necessary to protect our intellectual property rights or defend against claims of infringement. This litigation could result in significant costs and divert our management’s focus away from operations.

~~Our future success is substantially dependent upon~~Hurricanes, other adverse weather events, national or regional catastrophes or natural disasters could negatively affect the local economies we serve or disrupt our ~~senior management.~~Our future success is substantially dependent upon the efforts and abilities of members of our existing senior management. Competition for senior management is intense, and we may not be successful in attracting and retaining key personnel, the inability ofoperations, which could have an adverse effect on our business ~~and~~or results of operations. Our market areas include the Gulf Coast and Mid-Atlantic regions of the United States, and Puerto Rico, which are susceptible to hurricanes. Such weather events can disrupt our operations, result in damage to our properties and negatively affect the local economies in which we operate. Future hurricanes could result in damage to certain of our facilities and the equipment located at such facilities, or equipment on rent with customers in those areas. Even if our properties suffer no direct damage from such events, the operations of our customers could be disrupted, and our supply chain impacted. In addition, climate change could lead to an increase in intensity or occurrence of hurricanes or other adverse weather events, including severe winter storms. Future occurrences of these events, as well as regional or national catastrophes or natural disasters, and their effects may adversely impact our business or results of operations.

Our stock price may be volatile. The stock market, from time to time, has experienced significant price and volume fluctuations that are both related and unrelated to the operating performance of companies. Our stock may be affected by market volatility and by our own performance. The following factors, among others, may have a significant effect on the market price of our common stock:

The relatively low trading volume of our common stock may limit your ability to sell your shares. Although our shares of common stock are listed on the Nasdaq Global Market, we have historically experienced a relatively low trading volume of approximately 44,700 shares a day. If our low trading volume continues in the future, holders of our shares may have difficulty selling shares of our common stock in the manner or at a price that they desire.

If significant existing shareholders sell large numbers of shares of our common stock, our stock price could decline. The market price of our common stock could decline if a large number of our shares are sold in the public market by our existing shareholders or as a result of the perception that such sales could occur. Due to the relatively low trading volume of our common stock, the sale of a large number of shares of our common stock may significantly depress the price of our common stock.

Tax rates applicable to us may change. Tax legislation initiatives could adversely affect our net earnings and tax liabilities.We are subject to the tax laws and regulations of the United States federal, state and local governments, as well as foreign jurisdictions. From time to time, various legislative initiatives may be enacted that could adversely affect our tax positions. ~~There can be no assurance that our effective tax rate will not be adversely affected by these initiatives. In addition, tax~~Tax laws and regulations are extremely complex and subject to varying interpretations. The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) made broad and complex changes to the U.S. tax code, including, but not limited to reducing the Federal corporate income tax rate from 35% to 21%. Any additional modifications to key aspects of the tax code could materially affect our tax obligations and negatively impact our effective tax rate. Although we believe that our ~~historical~~ tax positions are sound and consistent with applicable laws, regulations and existing precedent, there can be no assurance that our tax positions will not be challenged by relevant tax authorities or that we would be successful in any such challenge.

As a “smaller reporting company,” we are not required to comply with the auditor attestation requirement under Section 404(b) of the Sarbanes-Oxley Act, which may cause investors to have less confidence in our internal control over financial reporting.The auditor attestation requirement under Section 404(b) of the Sarbanes-Oxley Act provides that a public company’s independent auditor must attest to and report on management’s internal control over financial reporting. Because we qualify as a “smaller reporting company” under the applicable SEC regulation, we are not required to comply with the auditor attestation requirement. The lack of an auditor attestation concerning management’s internal control over financial reporting may cause investors to have less confidence in our internal control over financial reporting and increases the risk that any material weakness or other deficiencies in our internal controls will not be detected.

Changes in accounting standards, legal requirements and ~~The NASDAQ Stock~~the Nasdaq Global Market listing standards, or our ability to comply with any existing requirements or standards, could adversely affect our operating results.Extensive reforms relating to public company financial reporting, corporate governance and ethics, ~~The NASDAQ Stock~~the Nasdaq Global Market listing standards and oversight of the accounting profession have been implemented over the past several years and continue to evolve. Compliance with these rules, regulations and standards that have resulted from such reforms has increased our accounting and legal costs and has required significant management time and attention. In the event that additional rules, regulations or standards are implemented or any of the existing rules, regulations or standards to which we are subject undergoes additional material modification, we could be forced to spend significant financial and management resources to ensure our continued compliance, which could have an adverse effect on our results of operations. In addition, although we believe we are in full compliance with all such existing rules, regulations and standards, should we be or become unable to comply with any of such rules, regulations and standards, as they presently exist or as they may exist in the future, our results of operations could be adversely ~~effected~~affected and the market price of our common stock could decline.

Our international operations expose us to legal and regulatory risks, which could have a material effect on our business. Our international operations are governed by various U.S. laws and regulations, including the Foreign Corrupt Practices Act (“FCPA”), and other foreign anti-bribery laws. The FCPA generally prohibits companies and their intermediaries from making improper payments to foreign government officials for the purpose of obtaining or retaining business. Any alleged or actual violations of these or other relevant regulations may subject us to government scrutiny, severe criminal or civil sanctions and other liabilities and could negatively affect our business, reputation, operating results and financial condition.

The following table presents ~~our~~the leased and owned properties that are material to our business as of March ~~26, 2016:~~25, 2023:

We believe that our properties are in good condition, are well maintained and are generally suitable and adequate to carry on our business in its current form.

From time to time we are a party to or otherwise involved in legal proceedings arising out of the normal course of business. Management does not believe that there is any pending or threatened proceeding against us, which, if determined adversely, would have a material adverse effect on our business, results of operations or financial condition.

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on ~~The NASDAQ~~the Nasdaq Global Market under the symbol ~~“TRNS.”~~“TRNS”. As of June ~~14, 2016,~~1, 2023, we had approximately ~~465~~500 shareholders of record.

The following table presents, on a per share basis, for the periods indicated, the high and low reported sales prices of our common stock as reported on The NASDAQ Global Market for each quarterly period in fiscal years 2016 and 2015:DIVIDENDS

Our credit agreement, as amended, limits our ability to pay cash dividends to $3.0 million in any fiscal year. We have not declared any cash dividends since our inception and have no current plans to pay any dividends in the foreseeable future.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL ~~DATA~~CONDITION AND RESULTS OF OPERATIONS

The following ~~table provides selected~~discussion and analysis of financial ~~data for fiscal year 2016~~condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this annual report. In addition to historical information, the following discussion and analysis includes forward looking statements that involve risks, uncertainties and assumptions. Our actual results and the ~~previous four fiscal years (in thousands, except per share data). Certain reclassifications~~timing of ~~financial information for prior fiscal years have been made to conform to~~events could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in “Risk Factors” and elsewhere in this annual report. See the ~~presentation for the current fiscal year.~~

We are a leading provider of accredited calibration ~~repair, inspection and laboratory instrument~~services, enterprise asset management services, and a value-added distributor of professional grade handheld test, measurement and control instrumentation.

We operate our business through two reportable business segments, Service and Distribution, which offer a comprehensive range of services and products to the same customer base.

Our strength in our Service segment is based upon our wide range of disciplines, our investment in quality systems and our ability to provide accredited calibrations to customers in highly-regulated targeted market segments. Our services range from the calibration and repair of a single unit to managing a customer’s entire calibration program. We believe our Service segment offers an opportunity for long-term growth and the potential for continuing revenue from established customers with regular calibration cycles and recurring laboratory instrument service requirements.

~~Transcat’s revenues tend to partially correlate with U.S. business investment and industrial output. During~~

Our Service segment has shown consistent revenue growth over the past several years, ending fiscal year ~~2016, our~~2023 with its 56th consecutive quarter of year-over-year growth. This segment has benefited from both organic growth as well as acquisitions over those 56 quarters. The business has been affected by negative macro-economic conditions including the general retraction of U.S. industrial output and more specifically, the downturn in the oil and gas sector. While the impact of these conditions has been less in our Service segment than in our Distribution segment,acquisitions that we have devoted resources towards acquiring customers in other highly-regulated markets, such as life sciences and aerospace, to mitigate the impact of these conditions on our overall business. In the Service segment, resourcesmade have been dedicated to grow sales to customers in other highly-regulated markets organically and through business acquisitions. Business acquisitions made during fiscal year 2016 brought additional customer bases andheavily focused on expanding our service capabilities, ~~while~~ increasing our geographic reach and leveraging our Calibration Service Centers and other infrastructure to ~~allow~~create operational synergies.

Our Service segment revenue growth was 18.8% for ~~realization~~fiscal year 2023 from fiscal year 2022, and included a combination of ~~cost synergies. We believe there are other acquisition opportunities available within our targeted customer sectors and/or geographic markets and that pursuing business acquisitions in addition to~~ organic growth ~~initiatives is an effective strategy in the current economic environment.~~and acquisition related revenue. The Service segment gross margin increased by 30 basis points. Service segment gross profit and gross margin increases were primarily due to improved productivity offset by increased start-up costs from new client-based lab implementations.

In our Distribution segment, we sell and offer for rent, professional grade handheld test and measurement instruments. Because we specialize in professional grade handheld test and measurement instruments, as opposed to a wide array of industrial products, our sales and customer service personnel can provide value-added technical assistance to our customers to aid them in determining what product best meets their particular application requirements. ~~With the acquisition of Excalibur in April 2016, we now~~We have expertise in the procurement and sale of used equipment, furthering our ability to add value for our customers. We also have a higher-end electronic test and measurement equipment rental business that augments our organically grown test and measurement equipment rental business. Through our ~~enhanced~~ website and ~~Master Catalog,~~sales teams, customers can place orders for test and measurement instruments and can ~~also~~ elect to have their purchased instruments calibrated and certified by usour Calibration Service Centers before shipment ~~and use,~~ as well as on a regular ~~interval post-purchase.~~post-purchase intervals. Pre-shipment calibration and certification allows our customers to place newly purchased instruments into service immediately upon receipt.

Sales in our Distribution segment are generally not consumable items but are instruments purchased as replacements, upgrades or for expansion of manufacturing or research and development facilities. As such, this segment can be heavily impacted by changes in the economic environment. As customers increase or decrease capital and discretionary spending, our Distribution sales will typically be directly impacted.

In fiscal year 2023, Distribution segment sales increased by 3.3%. This ~~was evidenced~~increase in sales primarily due to increased demand for rental orders.

~~our sales to the oil~~products sold and ~~gas sector decreased concurrent with the overall contraction experienced in that sector. This segment also felt the impact of a general retraction of U.S. industrial output, resulting from the~~ strong ~~U.S. dollar’s impact on international~~ demand for ~~U.S. outputs. Also, recently we have seen web-based competitors begin to sell some of the same products that we have historically sold. All the above factors have had a negative impact on~~ our ~~Distribution~~higher-margin rentals business.

Initiatives implemented within this segment ~~sales. To stabilize Distribution segment sales, we will continue to expand~~include adding new in-demand vendors and product lines, expanding the number of ~~SKU’s~~SKUs that we offer ~~grow new product calibrations, leverage our digital transformation,~~with and ~~capitalize on our recent acquisition of Excalibur~~without pre-shipment calibration and ~~its~~offering equipment rental and used equipment ~~business and national network~~options. Management believes this diversification strategy will mitigate the impact that any particular industry or sector will have on the overall performance of ~~independent sales representatives.~~this segment as well as help to further differentiate us from our competitors going forward.

In evaluating our results for fiscal year ~~2016, it is important to~~2023, investors should consider that we operate on a 52/53-week fiscal year, ~~2016 operating~~ending the last Saturday in March. In a 52-week fiscal year, each of the four quarters is a 13-week period. In a 53-week fiscal year, the last quarter is a 14-week period. Fiscal years 2023 and 2022 each consisted of 52 weeks.

A discussion regarding our financial condition and results ~~include those~~ of ~~acquired businesses from their respective dates of acquisition through~~operations for the fiscal year ended March 26, ~~2016.~~2022 and year-to-year comparisons between fiscal year 2022 and fiscal year 2021, which are not included in this Form 10-K, can be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended March 26, 2022 and are incorporated by reference herein.

Total revenue for fiscal year ~~2016~~2023 was ~~$122.2~~$230.6 million. This represented an increase of $25.6 million ~~a 1.2% decline compared with~~or 12.5% versus total revenue of ~~$123.6~~$205.0 million for fiscal year ~~2015.~~2022. Total revenue increased due to increases in both Service revenue and Distribution sales increases.

Service revenue ~~increased 14.3% to $59.2~~was $144.9 million ~~or 48.5% of total revenue,~~ in fiscal year ~~2016.~~2023, an increase of $22.9 million or 18.8%. Service revenue accounted for 62.8% of our total revenue during fiscal year 2023. Of our Service revenue in fiscal year ~~2016, 82.5%~~2023, 86.2% was generated by our Calibration Service Centers and enterprise asset management services while ~~15.7%~~12.6% was generated through subcontracted third-party vendors, compared with ~~82.2%~~84.0% and ~~15.8%~~14.5%, respectively, in fiscal year ~~2015.~~2022. The ~~balance~~remainder of our Service revenue in each period was ~~associated with other~~derived from freight charges.

Distribution sales ~~declined 12.3% to $63.0~~were $85.7 million in fiscal year 2023, an increase of $2.7 million or ~~51.5%~~3.3%. Distribution sales accounted for 37.2% of our total revenue in fiscal year ~~2016.~~ 2023.

Sales to domestic customers comprised ~~92.3%~~92.1% of total Distribution sales in fiscal year ~~2015,~~2023, while ~~5.5%~~6.6% were to Canadian customers and ~~2.2%~~1.3% were to customers in other international markets.

Total gross profit was $68.4 million in fiscal year ~~2016~~2023 compared to $58.4 million in fiscal year 2022, an increase of $9.9 million or 17.0%. Total gross margin was ~~23.8%~~29.6%, which is a 110 basis point increase versus fiscal year 2022. Service gross margin was 32.2% in fiscal year 2023 compared with 31.9% in fiscal year 2022, a 30 basis point ~~improvement~~increase. Distribution gross margin was 25.3% in fiscal year 2023 compared with ~~gross margin of~~ 23.5% in fiscal year ~~2015. Service~~2022, a 180 basis point increase. This increase in service gross margin in fiscal year 2023 was primarily the result of improved productivity offset by increased start-up costs from new client-based lab implementations. The increase in Distribution segment gross margin was ~~26.3% in fiscal year 2016 compared with 27.2% in fiscal year 2015. Distribution gross margin was 21.5% in fiscal year 2016 compared with 20.9% in fiscal year 2015.~~primarily due to a favorable mix of products sold and strong demand for our higher-margin rentals business.

Operating expenses were ~~$22.8~~$52.1 million, or ~~18.6%~~22.6% of total revenue, in fiscal year ~~2016~~2023 compared with ~~$22.3~~$44.3 million, or ~~18.0%~~21.6% of total revenue, in fiscal year ~~2015.~~2022. Operating income was ~~$6.3~~$16.2 million, or 7.0% of total revenue, in fiscal year 2023 compared with $14.1 million, or 6.9% of total revenue, in fiscal year 2022. The year-over-year increase in selling, marketing and warehouse expenses was due to increased expenses related to recent acquisitions, especially acquisition related amortization expense, and higher incentive-based employee costs due to higher sales. The year-over-year increase in general and administrative expenses was due to by incremental expenses from acquired businesses (including stock expense), increased payroll costs for new employees and continued investments in technology.

Net income for fiscal year 2023 was $10.7 million compared with $11.4 million in fiscal year ~~2016~~2022, a $0.7 million decrease. Diluted earnings per share for fiscal year 2023 was $1.40 compared with ~~$6.8 million in~~$1.50 for fiscal year ~~2015.~~2022, a $0.10 per diluted share decrease.

The preparation of our Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States (“US GAAP”) requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are used for, but not limited to, allowance for doubtful accounts and returns, inventory reserves, estimated levels of achievement for performance-based restricted stock units, fair value of stock options, depreciable lives of fixed assets, estimated lives of major catalogs and intangible assets, and the valuation of assets acquired, ~~and~~ liabilities assumed and consideration transferred in business acquisitions. Future events and their effects cannot be predicted with certainty; accordingly, our accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of our Consolidated Financial Statements will change as new events occur, as more experience is acquired, as additional information is obtained, and as our operating environment changes. Our estimates are evaluated on an ongoing basis and are drawn from historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates. Such changes and refinements in estimation methodologies are reflected in reported results of operations in the period in which the changes are made and, if material, their effects are disclosed in the Notes to our Consolidated Financial Statements.

The following items in our Consolidated Financial Statements require significant estimation or ~~judgment.~~judgment:

Accounts receivable represent amounts due from customers in the ordinary course of business. These amounts are recorded net of the allowance for doubtful accounts and returns in the Consolidated Balance Sheets. The allowance for doubtful accounts is based upon the expected collectability of accounts receivable. We apply a specific formula to our accounts receivable aging, which may be adjusted on a specific account basis where the formula may not appropriately reserve for loss exposure. After all attempts to collect a receivable have failed, the receivable is written-off against the allowance for doubtful accounts. ~~The~~A returns reserve is calculated based upon the historical rate of returns applied to revenues over a specific timeframe. The returns reserve will increase or decrease as a result of changes in the level of revenues and/or the historical rate of returns. Management believes that the allowances are appropriate to cover anticipated losses under current conditions. However, unexpected changes or deterioration in economic conditions could materially change these expectations.

Inventory. Inventory consists of products purchased for resale and is valued at the lower of cost or ~~market.~~net realizable value. Costs are determined using the average cost method of inventory valuation. Inventory is reduced by a reserve for items not saleable at or above cost by applying a specific loss factor, based on historical experience and current demand, to specific categories of our inventory. Inventory is at risk of obsolescence if economic conditions change. Relevant economic conditions include changing consumer demand, customer preferences or increasing competition. We believe these risks are largely mitigated because our inventory typically turns ~~approximately ten~~several times per year. We evaluate the adequacy of the reserve on a quarterly basis.

We apply the acquisition method of accounting for business acquisitions. Under the acquisition method, ~~the underlying tangible and intangible~~identifiable assets acquired, ~~and~~ liabilities assumed and consideration transferred are ~~recorded based on~~measured at their ~~respective~~acquisition-date fair ~~values at the date of acquisition.~~value. We use a valuation hierarchy to determine the fair values used. Historically, we have relied, in part, upon the use of reports from third-party valuation specialists to assist in the estimation of fair values. Purchase price allocations are subject to revision within the measurement period, not to exceed one year from the date of acquisition. The fair value of contingent consideration is determined at each reporting period with changes reflected in the statement of operations. Administration costs to acquire a business may include, but are not limited to, fees for accounting, legal and valuation services and are recorded as incurred in our Consolidated Statement of Income.

Goodwill represents the excess of the purchase price over the values assigned to the underlying net assets of an acquired business and is not amortized. As of March ~~26, 2016,~~25, 2023, we had ~~$29.1~~$69.4 million of recorded goodwill. ~~During fiscal year 2016, we recorded $8.4 million in additional goodwill associated with five business acquisitions.~~

Intangible assets, namely customer base and covenants not to compete, represent an allocation of purchase price to identifiable intangible assets of an acquired business. These intangible assets are amortized over their estimated useful ~~lives.~~lives and are reviewed for impairment if and when indicators are present.

We test goodwill for impairment for each reporting unit on an annual basis during the fourth quarter of each fiscal year or immediately if conditions indicate that such impairment could exist. We estimate the fair value of our reporting units using the fair market value measurement requirement.

~~We test goodwill for impairment on an annual basis, or immediately if conditions indicate that such impairment could exist.~~ We have the option to perform a qualitative assessment to determine if it is more likely than not that the fair value of a ~~segment~~reporting unit has declined below its carrying value. This assessment considers various financial, macroeconomic, industry and segment specific qualitative factors. Based on the results of our qualitative impairment testing, we have determined that it was more likely than not that the fair values exceeded the carrying values of goodwill for each reporting unit and there were no impairments as of each of March 25, 2023 and March 26, 2022.

Intangible assets are evaluated for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. ~~Based on~~In the ~~results~~event a trigger is identified, the carrying value of ~~our reviews, we have determined~~the asset group is compared to the undiscounted cash flows from that asset group. There were no intangible asset impairment ~~was indicated as of~~indicators identified during the years ended March 25, 2023 or March 26, ~~2016~~2022.

Income Taxes. We record deferred income taxes for the effects of timing differences between financial and ~~March 28, 2015.~~

tax reporting. These differences relate primarily to accrued expenses, bad debt reserves, inventory reserves, operating leases, goodwill and intangible assets, depreciation and amortization and stock-based compensation. We base our deferred income taxes, accrued income taxes and provision for income taxes upon income, statutory tax rates, the legal structure of our Company, interpretation of tax laws and tax planning opportunities available to us in the various jurisdictions in which we operate. We file income tax returns in the U.S. federal jurisdiction, various states, Canada and ~~Canada.~~Ireland. We are regularly audited by federal, state and foreign tax authorities, but a number of years may elapse before an uncertain tax position, for which we have unrecognized tax benefits, is audited and finally resolved. From time to time, these audits result in assessments of additional tax. ~~We maintain reserves for such assessments.~~

We apply a more-likely-than-not threshold to the recognition and derecognition of uncertain tax positions. Accordingly, we recognize the amount of tax benefit that has a greater than 50% likelihood of being ultimately realized upon settlement. Future changes in judgments and estimates related to the expected ultimate resolution of uncertain tax positions will affect income in the quarter of such change. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, we believe that our unrecognized tax benefits reflect the most likely outcome.

We measure 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 uses the Black-Scholes option pricing model to estimate the fair value of stock options granted. The application of this pricing model involves assumptions that require judgment and are sensitive in the determination of compensation expense. The fair market value of our common stock on the date of each option grant is determined based on the most recent closing price on our primary trading stock exchange, currently the NASDAQ Global Market.

We record compensation cost related to unvested equity awards by recognizing, on a ~~straight line~~straight-line basis, the unamortized grant date fair value over the remaining service period ~~of each award. Excess~~for awards expected to vest. In accordance with Accounting Standards Updates (“ASU”) 2016-09, excess tax benefits ~~from the exercise of equity awards~~for share-based award activity are ~~presented~~reflected in the Consolidated ~~Statements~~Statement of ~~Cash Flows~~Income as a ~~financing activity.~~component of the provision for income taxes. 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. We did not capitalize any stock-based compensation costs as part of an asset. We estimate forfeiture rates based on our historical experience.

We grant timed-based and performance-based restricted stock units as a ~~primary~~ component of executive and key employee compensation. ~~The~~These restricted stock units ~~generally~~are either time vested or vest following the third fiscal year from the date of grant subject to ~~certain~~ cumulative diluted earnings per share growth targets over the eligible period. Compensation cost ultimately recognized for these ~~performance-based~~ restricted stock units will equal the grant-date fair market value of the unit that coincides with the actual outcome of the performance conditions. On an interim basis, we record compensation cost based on the expected level of achievement of the performance conditions. The expense relating to the time vested restricted stock units is recognized on a straight-line basis over the requisite service period for the entire award.

Stock options ~~generally~~ vest either immediately or over a period of up to ~~four~~five years using ~~either a graded schedule or on~~ a straight-line basis, and expire either five years or ten years from the date of grant. The expense relating to options is recognized on a straight-line basis over the requisite service period for the entire award.

See Note 6 to our Consolidated Financial Statements for further disclosure regarding our stock-based compensation.

The Company has a defined benefit post-retirement health care plan which provides long-term care insurance benefits, medical and dental insurance benefits, and medical premium reimbursement benefits to eligible retired corporate officers and their eligible spouses.

For accounting purposes, the defined benefit post-retirement health care plan requires assumptions to estimate the projected and accumulated benefit obligations, including the following variables: discount rate; certain employee-related factors, such as retirement age and mortality; and health care cost trend rates. These and other assumptions affect the annual expense and obligations recognized for the underlying plans. Our assumptions reflect our historical experiences and ~~management’s~~management's best judgment regarding future expectations.

Increasing the assumed health care cost trend rate by one percentage point would increase the accumulated post-retirement benefit obligation and the annual net periodic post-retirement benefit cost by $0.1 million. A one percentage point decrease in the healthcare cost trend would decrease the accumulated post-retirement benefit obligation and the annual net periodic post-retirement benefit cost by $0.1 million.

. In the normal course of business, management evaluates all new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) to determine the potential impact they may have on our consolidated financial statements. For a discussion of the newly issued accounting pronouncements see “Recently Issued Accounting Pronouncements” under Note 1 to the Consolidated Financial Statements included in Item 8 of Part II of this report.

The following table sets forth, for fiscal years ~~2016~~2023 and ~~2015,~~2022, the components of our Consolidated Statements of Income.

~~Fiscal Year Ended~~FISCAL YEAR ENDED March 25, 2023 COMPARED TO FISCAL YEAR ENDED March 26, ~~2016 Compared to Fiscal Year Ended March 28, 2015~~2022 (dollars in thousands):

Total revenue ~~declined $1.5~~was $230.6 million in fiscal year 2023 compared to $205.0 million in fiscal year 2022, an increase of $25.6 million or ~~1.2%, from fiscal year 2015 to fiscal year 2016.~~12.5%.

Service revenue, which accounted for ~~48.5%~~62.8% and ~~41.9%~~59.5% of our total revenue in fiscal years ~~2016~~2023 and ~~2015,~~2022, respectively, increased ~~14.3%~~$22.9 million, or 18.8% from fiscal year ~~2015~~2022 to fiscal year ~~2016.~~2023. This year-over-year growth includes a combination of organic and acquisition-related revenue growth.

This year-over-year increase ~~was~~also reflected increased demand from the ~~result~~life sciences and other highly-regulated end markets in fiscal year 2023 and included $10.6 million of ~~business acquisitions and~~incremental revenue from acquisitions. Excluding acquired revenue of $10.6 million, the Service segment organic ~~growth. Organic~~ revenue ~~growth was experienced across various key industries that we serve and was driven~~increased by ~~retention of existing customers as well as the expansion of our customer base through business development activities.~~10.0%.

Our fiscal years ~~2016~~2023 and ~~2015~~2022 Service revenue growth in relation to prior fiscal year quarter comparisons, ~~were~~was as follows:

Within any year, while we add new customers, we also have customers from the prior year whose service orders may not repeat for any number of factors. Among those factors are variations in the timing of periodic calibrations and other services, customer capital expenditures and customer outsourcing decisions. Because the timing of Service segment orders can vary on a quarter-to-quarter basis, we believe a trailing twelve-month trend provides a better indication of the progress of this segment.

The growth in fiscal year 2023 and fiscal year 2022 reflected both organic growth and acquisitions. The growth in Service segment revenue in fiscal year 2023 includes revenue from Alliance, e2b and Complete Calibration. The growth in Service segment revenue in fiscal year 2022 includes revenue from NEXA and Tangent.

The following table presents the trailing twelve-month Service segment revenue for each quarter in fiscal years ~~2016~~2023 and ~~2015~~2022 as well as the trailing twelve-month revenue growth as a comparison to that of the prior fiscal year period:

Our strategy has been to focus our investments in the core electrical, temperature, pressure, physical/dimensional and radio frequency/microwave calibration disciplines. We expect to subcontract approximately 13% to 15% of our Service revenue to third-party vendors for calibration beyond our chosen scope of capabilities. ~~During any individual quarter, we could fluctuate beyond these percentages.~~ We continually evaluate our outsourcing needs and make capital investments, as deemed necessary, to add more in-house capabilities and reduce the need for third-party vendors. Capability expansion through business acquisitions is another way that we seek to reduce the need for outsourcing. ~~Please refer to “Our Strategy” under Part 1, Item 1 of this report for an overview of recent business acquisitions that have expanded our capabilities.~~ The following table presents the source of our Service revenue and the percentage of Service revenue derived from each source for each quarter during fiscal years ~~2016~~2023 and ~~2015:~~2022:

Our Distribution sales accounted for ~~51.5%~~37.2% and ~~58.1%~~40.5% of our total revenue in fiscal years ~~2016~~2023 and ~~2015,~~2022, respectively. ~~Year-over-year,~~ Distribution sales ~~declined $8.9~~increased $2.7 million, or ~~12.3%. The year-over-year decline~~3.3% in fiscal year 2023 compared to fiscal year 2022. This increase in sales was primarily due to ~~reduced~~strong demand ~~from~~for rental orders. The increase in sales in fiscal year 2023 were all organic. The change in fiscal year 2022 versus fiscal year 2021 reflected both organic and an easier comparison to fiscal year 2021, which was adversely impacted by the ~~oil and gas industry.~~COVID-19 pandemic. Our fiscal years ~~2016~~2023 and ~~2015~~2022 Distribution sales ~~(decline)~~ growth in relation to prior fiscal year quarter comparisons were as follows:

Distribution sales orders include orders for instruments that we routinely stock in our inventory, customized products, and other products ordered less frequently, which we do not stock. Backorders are the total dollar value of orders received for which revenue has not yet been recognized. Pending product shipments are primarily backorders, but also include the total dollar value of products that are requested to be calibrated in our service centers prior to shipment, orders required by the customer to be shipped complete or at a future date, and other orders awaiting final credit or management review prior to shipment. Management uses pending product shipments and backorders as measures of our future business performance and financial performance within the distribution segment.

Our total pending product shipments ~~declined $0.2~~increased $0.4 million, or ~~7.7%~~4.6%, at the end of fiscal year ~~2016~~2023 compared to the end of fiscal year ~~2015.~~2022. Backorders at the end of fiscal year ~~2016~~2023 were ~~$2.4~~$6.9 million, ~~consistent with~~compared to $6.4 million at the end of fiscal year ~~2015.~~ 2022. The year-over-year increase in pending product shipments was a result of the disruption to the supply of products as well as increased orders.

The following table presents the percentage of total pending product shipments that were backorders at the end of each quarter in fiscal years ~~2016~~2023 and ~~2015~~2022 and our historical trend of total pending product shipments:

Total gross profit in fiscal year ~~2016~~2023 was ~~$29.1~~$68.4 million ~~consistent with~~compared to $58.4 million in fiscal year ~~2015.~~2022, an increase of $9.9 million or 17.0%. As a percentage of total revenue, total gross margin ~~improved 30~~was 29.6% in fiscal year 2023 compared to 28.5% in fiscal year 2022, a 110 basis ~~points over the same time period.~~point increase.

Service gross profit ~~increased $1.5~~was $46.6 million, an increase of $7.7 million, or ~~10.5%~~19.8%, from fiscal year ~~2015~~2022 to fiscal year ~~2016.~~2023. Our annual and quarterly Service segment gross margins are a function of several factors. Our organic Service revenue growth provides some incremental gross margin growth by leveraging certain fixed costs of this segment. Service segment revenue growth from our recent business acquisitions, while providing a base for future organic revenue growth, may moderate or reduce our gross margins as we acquire additional fixed costs. The mix of services provided to customers may also affect gross margins in any given period. Service gross margin ~~declined 90~~increased by 30 basis points ~~from~~in fiscal year ~~2015 to~~2023 versus fiscal year ~~2016, reflecting~~2022. This increase in service gross margin in fiscal year 2023 was the ~~combined impact~~result of improved productivity offset by increased ~~performance-based compensation and additional fixed~~start-up costs from ~~businesses acquired late in our fiscal year.~~ new client-based lab implementations.

The following table presents the quarterly historical trend of our Service gross margin as a percent of Service revenue:

Our Distribution gross ~~profit from two perspectives. Channel gross profit~~margin includes net sales less the direct cost of inventory ~~sold. Our Distribution gross profit includes channel gross profit~~sold and the direct costs of equipment rental revenues, primarily depreciation expense for the fixed assets in our rental equipment pool, as well as the impact of ~~vendor~~ rebates and cooperative advertising income we receive from vendors, freight billed to customers, freight expenses and direct shipping costs. During fiscal year 2023, we saw a decrease in the rebates offered by our vendors. We recorded vendor rebates of $0.6 million and $1.0 million in fiscal years 2023 and 2022, respectively, as a reduction of cost of Distribution sales. In general, our Distribution gross margin can vary based upon the mix of products sold, price discounting, ~~and~~ the timing of periodic vendor rebates offered and cooperative advertising programs from suppliers.

Distribution gross profit declined $1.5 million in fiscal year 2016 compared to fiscal year 2015, primarily due to reduced sales volume. Total Distribution gross margin in fiscal year 2016 was 21.5%, a 60 basis point increase when compared with fiscal year 2015. This increase resulted from a year-over-year increase in vendor rebates. Vendor rebates in any given period may vary depending on what programs our vendors offer and which programs we choose to pursue.

The following table ~~presents~~reflects the quarterly historical trend of our Distribution gross ~~profit~~margin as a percent of Distribution sales:

~~Operating expenses~~Distribution segment gross margin increased ~~$0.5 million, or 2.2%, from~~180 basis points in fiscal year ~~2015~~2023 compared to fiscal year ~~2016.~~2022. The increase in segment gross margin was primarily due to a favorable mix of products sold, strong demand for our higher-margin products sold and rented.

Total operating expenses were $52.1 million in fiscal year 2023 compared to $44.3 million in fiscal year 2022. This represented an increase of $7.8 million, or 17.6%, compared to fiscal year 2022. As a percentage of total revenue, operating expenses increased 100 basis points from ~~18.0%~~21.6% in fiscal year ~~2015~~2022 to ~~18.6%~~22.6% in fiscal year ~~2016. Administrative~~2023. The year-over-year increase in selling, marketing and warehouse expenses is due to increased ~~$0.8 million reflecting increased non-recurring~~expenses related to recent acquisitions, especially acquisition related amortization expense, and higher incentive-based employee costs due to higher sales. The increase in general and administrative expenses includes incremental expenses related to acquired companies, increased payroll costs for new employees and ~~increased performance-based compensation expense.~~continued investments in technology.

Our effective tax ~~rates~~rate for fiscal years ~~2016~~2023 and ~~2015 were 31.3%~~2022 was 20.8% and ~~37.3%~~13.7%, respectively. The ~~decrease largely reflects~~increase in tax rate is due to the ~~cumulative impact of U.S. federal~~lower discrete tax benefits from share-based compensation activity. Our provision for income taxes is affected by discrete items that may occur in any given period but are not consistent from year to year. The discrete benefits related to share-based compensation activity in fiscal years 2023 and ~~state research~~2022 were $0.4 million and ~~development~~$1.4 million, respectively. We continue to evaluate our tax ~~credits that were identified for open years, including fiscal year 2016. We expect~~provision on a quarterly basis and adjust, as deemed necessary, our ~~future~~ effective tax rate given changes in facts and circumstances expected in the future.

We expect to ~~be approximately 34.0% to 36.0%, with~~receive certain federal, state, Canadian and Irish tax credits ~~still being recognized but~~in future years. We also expect to ~~a lesser extent than~~receive discrete tax benefits related to share-based compensation awards in fiscal year ~~2016.~~2024. As such, we expect our effective tax rate in fiscal year 2024 to be between 21.0% and 23.0%.

In addition to ~~other measures, management relies on earnings~~reporting net income, a GAAP measure, we present Adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization, ~~and~~ non-cash stock compensation expense, (“acquisition related transaction expenses, non-cash loss on sale of building, and restructuring expense), which is a non-GAAP measure. Our management believes Adjusted ~~EBITDA”)~~EBITDA is an important measure of our operating performance because it allows management, investors and others to evaluate and compare the performance of our core operations from period to period by removing the impact of the capital structure (interest), tangible and intangible asset base (depreciation and amortization), taxes, stock-based compensation expense and other items, which is not always commensurate with the reporting period in which it is included. As such, our management uses Adjusted EBITDA as ~~an indicator~~a measure of performance ~~of the business. We believe~~when evaluating our business segments and as a basis for planning and forecasting. Adjusted EBITDA ~~allows investors to view our performance in a manner similar to the methods~~is also commonly used by ~~management~~rating agencies, lenders and ~~provides additional insight into~~other parties to evaluate our ~~operating results.~~ credit worthiness.

Adjusted EBITDA is not a measure of financial performance under US GAAP and is not calculated through the application of US GAAP. As such, it should not be considered as a substitute or alternative for the US GAAP ~~measures~~measure of net ~~income; operating~~ income ~~or cash flows from operating, financing~~ and, ~~investing activities; or a measure~~therefore, should not be used in isolation of, ~~liquidity.~~but in conjunction with, the GAAP measure. Adjusted EBITDA, as presented, may produce results that vary from the GAAP measure and may not be comparable to a similarly defined ~~non-US GAAP measures~~non-GAAP measure used by other companies.

During fiscal year 2023, Adjusted EBITDA ~~for fiscal year 2016~~ was ~~$10.6~~$30.4 million, ~~a 3.0% improvement as~~an increase of $4.1 million or 15.6% compared to fiscal year ~~2015. This compares with~~2022. As a ~~decline~~percentage of ~~7.3%~~revenue, Adjusted EBITDA was 13.2% during fiscal year 2023 versus 12.8% during fiscal year 2022, a 40 basis point increase. The increase in Adjusted EBITDA during fiscal year 2023 was primarily driven by the increase in operating income, ~~from $6.8 million in fiscal 2015 to $6.3 million in fiscal year 2016.~~depreciation and amortization expense and non-cash stock compensation expense.

In addition to reporting Diluted Earnings Per Share, a GAAP measure, we present Adjusted Diluted Earnings Per Share (net income plus acquisition related amortization expense, acquisition related transaction expenses, acquisition related stock-based compensation, acquisition amortization of backlog and restructuring expense, on a diluted per share basis), which is a non-GAAP measure. Our management believes Adjusted Diluted Earnings Per Share is an important measure of our operating performance because it provides a basis for comparison of our business operations between current, past and future periods by excluding items that we do not believe are indicative of our core operating performance.

Adjusted Diluted Earnings Per Share is not a measure of financial performance under GAAP and is not calculated through the application of GAAP. As such, it should not be considered as a substitute or alternative for the GAAP measure of Diluted Earnings Per Share and, therefore, should not be used in isolation of, but in conjunction with, the GAAP measure. Adjusted Diluted Earnings Per Share, as presented, may produce results that vary from the GAAP measure and may not be comparable to a similarly defined non-GAAP measure used by other companies.

We expect that foreseeable liquidity and capital resource requirements will be met through anticipated cash flows from operations and borrowings from our Revolving Credit Facility (as defined below).

On July 7, 2021, we entered into the Second Amended and Restated Credit Facility Agreement (the “2021 Credit Agreement”) with Manufacturers and Traders Trust Company (“M&T”), that amended and restated in its entirety the Company’s Amended and Restated Credit Facility Agreement dated as of October 30, 2017, as amended by Amended and Restated Credit Facility Agreement Amendment 1 dated December 10, 2018 and Amended and Restated Credit Facility Agreement Amendment 2 (“Amendment Two”) dated May 18, 2020 (as amended, the “Prior Credit Agreement”).

The 2021 Credit Agreement increased the revolving credit commitment (the “Revolving Credit Commitment”) from $40.0 million to $80.0 million, with a letter of credit subfacility increased from $2.0 million to $10.0 million, and extended the term of the Revolving Credit Commitment to June 2026. The 2021 Credit Agreement amended the definition of Applicable Margin (formerly Applicable Rate under the Prior Credit Agreement), which is based upon our then current leverage ratio and is used to determine interest charges on outstanding and unused borrowings under the revolving credit facility; the amendments reduced the Applicable Margins payable at the two highest leverage ratio levels. The 2021 Credit Agreement also amended the definition of Permitted Acquisitions, that is, acquisitions which are permitted under, and may be financed with proceeds of, the revolving credit facility, including increasing the aggregate purchase price for acquisitions consummated in any fiscal year from $1.0 million to $65.0 million during fiscal year 2022 and $50.0 million during fiscal year 2023 and any subsequent fiscal year, and adding an aggregate purchase price of $40.0 million for acquisitions consummated at any time during the term of the 2021 Credit Agreement related to businesses with a principal place of business located in the United Kingdom or the European Union.

In addition, the 2021 Credit Agreement provides that, assuming no event of default, restricted payments up to $25.0 million (increased from $10.0 million in the Prior Credit Agreement) in the aggregate and $10.0 million (increased from $3.0 million in the Prior Credit Agreement) in any single fiscal year may be used by us to repurchase our shares and pay dividends. The 2021 Credit Agreement modified the leverage ratio and fixed charge coverage ratio covenants with which we are required to comply. The 2021 Credit Agreement also reduced the London Interbank Offered Rate ("LIBOR") floor from 1.0% to 0.25% and included a mechanism for adoption of a different benchmark rate upon the discontinuation of LIBOR. The 2021 Credit Agreement also reduced the fixed interest rate on our term loan in the amount of $15.0 million (the “2018 Term Loan”) from 4.15% to 3.90%.

The 2021 Credit Agreement superseded in its entirety, the Prior Credit Agreement. Amendment Two to the Prior Credit Agreement had previously extended the term of the revolving credit facility to October 20, 2022 and increased the revolving credit commitment to $40.0 million.

Amendment Two had modified the definition of the applicable rate used to determine interest charges on outstanding and unused borrowings under the revolving credit facility and it amended the definition of permitted acquisitions to amend borrowings available under the revolving credit facility for acquisitions. In addition, Amendment Two had amended the definition of restricted payments to exclude amounts up to $2.5 million during each fiscal year used to pay certain employee tax obligations associated with share-based payment and stock option activity, and modified certain restrictions to our ability to repurchase our shares and pay dividends. Amendment Two also had modified the leverage ratio and fixed charge coverage ratio covenants with which we were required to comply and limited capital expenditures to $5.5 million for fiscal year 2021. Amendment Two also had established a LIBOR floor of 1.0% and included a mechanism for adoption of a different benchmark rate in the event LIBOR was discontinued.

As of March 25, 2023, $80.0 million was available under the revolving credit facility, of which $42.7 million was outstanding and included in long-term debt on the Consolidated Balance Sheets. During fiscal year 2023 and 2022 we used $9.1 million and $29.8 million, respectively, for business acquisitions.

As of March 25, 2023, $6.4 million was outstanding on the 2018 Term Loan, of which $2.2 million was included in current liabilities on the Consolidated Balance Sheets with the remainder included in long-term debt. The 2018 Term Loan requires total repayments (principal plus interest) of $0.2 million per month through December 2025.

Pursuant to the Prior Credit Agreement, we were required to comply with a fixed charge ratio covenant and a leverage ratio covenant, which were modified by the 2021 Credit Agreement. The allowable leverage ratio under the Prior Credit Agreement for the first quarter of fiscal year 2022 was a maximum multiple of 4.0 of total debt outstanding compared to EBITDA and non-cash stock-based compensation expense for the preceding four consecutive fiscal quarters. The Prior Credit Agreement also had provided that the trailing twelve-month pro forma EBITDA of an acquired business was included in the allowable leverage calculation. After the first quarter of fiscal year 2022, pursuant to the 2021 Credit Agreement, the allowable leverage ratio is a maximum multiple of 3.0. We were in compliance with all loan covenants and requirements during fiscal years 2023 and 2022. Our leverage ratio, as defined in the 2021 Credit Agreement, was 1.60 at March 25, 2023, compared with 1.74 at March 26, 2022.

Interest on the revolving credit facility continues to accrue, at our election, at either the variable one-month LIBOR or a fixed rate for a designated period at the LIBOR corresponding to such period (subject to a 1.0% floor during the first quarter of fiscal year 2022 and a 0.25% floor for subsequent periods), in each case, plus a margin. Interest on outstanding borrowings under the 2018 Term Loan accrued at a fixed rate of 4.15% during the first quarter of fiscal year 2022 and accrued or will accrue at a fixed rate of 3.90% over the term of the loan for subsequent periods. Unused fees accrue based on the average daily amount of unused credit available on the revolving credit facility. Interest rate margins and unused fees are determined on a quarterly basis based upon our calculated leverage ratio.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted. The CARES Act included a provision that allows the Company to defer the employer portion of social security payroll tax payments that would have been paid between the enactment date and December 31, 2020, with 50% payable by December 31, 2021 and 50% payable by December 31, 2022. During fiscal year 2021, the Company deferred $2.0 million of employer social security payroll taxes. The Company repaid $1.0 million of the deferred amounts and during each of fiscal year 2023 and fiscal year 2022.

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

Net cash provided by ~~operations~~operating activities was ~~$11.0~~$17.0 million during fiscal year ~~2016~~2023 compared to ~~$4.4~~$17.6 million during fiscal year ~~2015.~~

2022. The year-over-year ~~increase~~decrease in cash provided by operations is primarily the result of changes in net working capital (defined as current assets less current liabilities). The significant ~~changes in net~~ working capital ~~were:~~fluctuations were as follows:

Our inventory balance increased $4.2 million during fiscal year 2023. Our inventory balance increased $1.1 million during fiscal year 2022. The year-over-year change is a result of strategic inventory purchases during fiscal year 2023.

Accounts payable increased $1.7 million during fiscal year 2023, inclusive of $0.1 million of accounts payable acquired during the period. Accounts payable increased by $1.9 million during fiscal year 2022. The variance is largely due to the timing of inventory and capital expenditure purchases and other payments in the respective periods.

During fiscal year 2023, accrued compensation and other liabilities decreased by $1.2 million, primarily due to reduced accrued incentives. During fiscal year 2022, accrued compensation and other liabilities increased by $1.0 million, inclusive of $0.5 million of accrued compensation and other liabilities acquired as part of three acquisitions completed during the period.

Investing ~~Activities~~Activities: During fiscal year 2023, we invested $9.4 million in capital expenditures that was used primarily for customer-driven expansion of Service segment capabilities and capacity and our rental business.

During fiscal year ~~2016,~~2022, we invested ~~$4.1~~$10.2 million in capital expenditures ~~compared to $3.5 million in fiscal year 2015,~~that was used primarily for ~~additional~~customer-driven expansion of Service segment capabilities and ~~assets for~~ our ~~instrument~~ rental program. During fiscal year 2016, we used $13.9 million for business acquisitions, compared to $7.3 million in fiscal year 2015. We expect capital expenditures, primarily for Service segment and rental business expansion, to total between $5.0 million to $5.5 million for fiscal year 2017.business.

During fiscal year ~~2016, approximately $6.9~~2023, we used $9.1 million ~~in net cash proceeds~~for business acquisitions. During fiscal year 2022, we used $29.8 million for business acquisitions.

During each of fiscal year 2023 and fiscal year 2022, no contingent consideration or other holdback amounts were ~~provided by~~paid related to a business acquisition.

Financing Activities: During fiscal year 2023, $2.8 million was borrowed from our ~~Revolving Credit Facility, primarily to fund business acquisitions,~~revolving line of credit and ~~$0.5~~$0.7 million in cash was generated from the issuance of common stock. In addition, we used $2.1 million for scheduled repayments of our term loan and $0.4 million for the “net” awarding of certain share awards to cover employee tax-withholding obligations for share award and stock option activity in fiscal year 2023, which is shown as a repurchase of shares of our common stock on our Consolidated Statements of Cash Flows.

During fiscal year ~~2015, cash provided by financing activities included approximately $4.6~~2022, $31.0 million was borrowed from the revolving line of credit and $1.5 million in cash ~~from our Revolving Credit Facility, used primarily to fund business acquisitions, and $0.5 million~~was generated from the issuance of our common stock.

~~Through~~ In addition, we used $2.1 million for scheduled repayments of our credit agreement, as amended, (the “Credit Agreement”) which matures on September 20, 2018, we have a revolving credit facility (the “Revolving Credit Facility”). The Revolving Credit Facility allows for maximum borrowings of $30.0term loan and $6.7 million ~~and limits the amount of borrowings that may be used for business acquisitions.~~

The Revolving Credit Facility is subject to a maximum borrowing restriction based on a 2.75 multiple of earnings before interest, income taxes, depreciation and amortization, and non-cash stock-based compensation expense for the ~~preceding four consecutive fiscal quarters. As~~“net” award of certain share awards to cover tax-withholding obligations for share award activity in the period which are shown as a repurchase of shares of our common stock on our Consolidated Statements of Cash Flows.

Effective March ~~26, 2016, $30.0 million was available under the Revolving Credit Facility, of which $19.1 million was outstanding and included in long-term debt on the Consolidated Balance Sheets. On April 1, 2016~~27, 2023, we ~~borrowed $6.6 million under the Revolving Credit Facility in connection with the acquisition of substantially~~purchased all of the ~~assets~~outstanding capital stock of ~~Excalibur.~~TIC-MS, Inc. (“TIC-MS”), a Missouri based provider of calibration services. This transaction aligned with a key component of our acquisition strategy of targeting businesses that expand the depth and breadth of our Service capabilities. The total purchase price paid for TIC-MS was approximately $9.8 million, of which $2.9 million was paid in cash, including $0.5 million place in escrow for certain post-closing adjustments and indemnification claims, if any, and the issuance of 77,387 shares of our common stock valued at approximately $6.8 million. Pursuant to the purchase agreement, the purchase price will be subject to reduction by up to $0.5 million if a key customer relationship is not retained.

As we ~~have to comply, including a fixed charge ratio covenant and a leverage ratio covenant. We were in compliance with all loan covenants and requirements throughout~~think ahead into fiscal year ~~2016.~~

~~On March 31, 2016,~~2024, despite macroeconomic uncertainty that looms over the ~~Company entered into Amendment 3~~business world, we expect another year of growth and margin expansion across our Service channels. Our business continues to ~~its Credit Agreement. Amendment 3 increased the limit~~benefit from a predominately life science-oriented market, driven by high levels of ~~borrowings that may be used for business acquisitions to $20.0 million for fiscal year 2017~~regulation and ~~$15.0 million for each fiscal year thereafter. Amendment 3 also provides the Company~~recurring revenue streams, along with a ~~$10.0 million term loan. The term loan requires principal repayments of $0.1 million per month plus interest. Amendment 3 also increases~~growing rentals business that tends to perform well throughout various economic cycles including more challenged economic environments. In the ~~allowable leverage ratio~~year ahead, we expect organic Service revenue growth in the high single-digits and gross margin improvement to ~~a maximum of 3.0 from 2.75.~~

continue. We ~~believe that amounts available under~~are investing in our ~~current credit facility and our cash on hand are sufficient to satisfy our expected working capital and capital expenditure needs~~high-growth NEXA business as well as ~~our lease commitments for the foreseeable future.~~

~~Contractual Obligations~~new client-based labs, which will support additional organic revenue growth and ~~Commercial Commitments~~

The table below contains aggregated information about future payments related to contractual obligations and commercial commitments such as debt and lease agreements as of March 26, 2016 (in millions):

~~Effective April 2016, the Company will have term loan payments due at a monthly amount of $0.1 million plus interest. These amounts are not reflected~~margin expansion in the ~~table above.~~second half of the year but will temporarily weigh on year-over-year gross margin expansion in the first quarter of fiscal year 2024.

AsAccretive acquisitions that strengthen our fundamental value proposition will be a key component of our go-forward strategy. Our robust and diverse acquisition pipeline enables opportunities for us to expand addressable markets and increase our capabilities like we ~~look forward,~~did with NEXA and the pipettes business.

We have generated consistent margin improvement over the past several years and we ~~remain confident~~believe the improvement will continue. Automation of our calibration processes and overall process improvement will be key enablers to future margin expansion. We anticipate demonstrating more selling, general and administrative expense leverage in ~~our strategic direction and~~the second half of fiscal year 2024. We believe ~~that the long-term view of Transcat continues to be quite compelling.~~

~~In fiscal 2017, for~~ the Service segment ~~we expect double-digit top-line performance with strong organic growth.~~has substantial runway ahead for growth, both organically and through acquisitions. We ~~also expect to realize the inherent leverage within the segment as we integrate recent acquisitions~~have a long history of generating sustainable value for our shareholders and ~~drive operating margin expansion.~~providing a dynamic, rewarding workplace for our team.

We expect our income tax rate to ~~accomplish~~range between 21.0% and 23.0% in fiscal year 2024. This estimate includes Federal, various state, Canadian and Irish income taxes and reflects the discrete tax accounting associated with share-based payment awards. Although the tax rate is consistent with recent years, there will be a difference in calendarization of the tax benefit from vesting of share-based payments in fiscal year 2024. These benefits are normally realized in the first quarter, but in fiscal year 2024, we will see the benefit in the second quarter, due to a timing difference of when the awards were made. In the first quarter of fiscal year 2023, this benefit positively impacted the tax rate by ~~continuing our SKU expansion, growing new product calibrations, leveraging our digital transformation,~~approximately 13% and ~~capitalizing on our recent acquisition~~we would expect a similar impact in second quarter of Excalibur, which brought an established national platform to expand our equipment rental business, provided a used equipment sales operation, and added a network of independent sales representatives throughout the U.S.fiscal year 2024.

Looking forward, we believe our strong cash generation, combined with the expansion of our credit facility, provides the liquidity and flexibility to execute on our business strategy, and that we are on track to grow revenue to $175 million to $200 million over the next five years with double-digit Adjusted EBITDA margins at that level.

Our exposure to changes in interest rates results from our borrowing activities. In the event interest rates were to move by 1%, our yearly interest expense would increase or decrease by approximately ~~$0.2~~$0.4 million assuming our average borrowing levels remained constant. As of March ~~26, 2016, $30.0~~25, 2023, $80.0 million was available under our ~~Revolving Credit Facility,~~revolving credit facility, of which ~~$19.1~~$42.7 million was outstanding and included in long-term debt on the Consolidated Balance ~~Sheet.~~Sheets. As described above under “Liquidity and Capital ~~Resources”,~~Resources,” we ~~executed~~also have a ~~$10.0~~$15.0 million (original principal) term ~~loan~~loan. The 2018 Term Loan is considered a fixed interest rate loan. As of March 25, 2023, $6.4 million was outstanding on ~~March 31, 2016 under~~ the ~~same terms as~~2018 Term Loan and was included in long-term debt and current portion of long-term debt on the ~~Revolving Credit Facility.~~Consolidated Balance Sheets. The 2018 Term Loan requires total (principal and interest) repayments of $0.2 million per month.

At our option, we borrow from our ~~Revolving Credit Facility~~revolving credit facility at the variable one-month LIBOR ~~adjusting daily,~~ or at a fixed rate for a designated period at the LIBOR (subject to a 1.0% floor during the first quarter of fiscal year 2022 and a 0.25% floor for subsequent periods) corresponding to such period, in each case, plus a margin. Our interest rate margin is determined on a quarterly basis based upon our calculated leverage ratio. ~~As of March 26, 2016, the one-month LIBOR was 0.4%.~~ Our interest rate ~~for~~during fiscal year ~~2016~~2023 for our revolving credit facility ranged from ~~1.3%~~1.6% to ~~1.9%~~6.5%. Interest on outstanding borrowings on the 2018 Term Loan accrued at a fixed rate of 4.15% over the term of the loan during the first quarter of fiscal year 2022 and 3.90% over the term of the loan for subsequent periods. Our revolving credit facility includes a mechanism for adoption of a different benchmark rate upon the discontinuation of LIBOR. On March ~~26, 2016,~~25, 2023, we had no hedging arrangements in place for our revolving credit facility to limit our exposure to upward movements in interest rates.

Approximately 90% of our total revenues for each of fiscal years ~~2016~~2023 and ~~2015~~2022 were denominated in U.S. dollars, with the remainder denominated in Canadian ~~dollars.~~dollars and Euros. A 10% change in the value of the Canadian dollar to the U.S. dollar and the Euro to the U.S. dollar would impact our revenue by ~~less than~~approximately 1%. We monitor the relationship between the U.S. and Canadian currencies and the U.S. and Euro currencies on a monthly basis and adjust sales prices for products and services sold in Canadian dollars or Euros as we believe to be appropriate.

We continually utilize short-term foreign exchange forward contracts to reduce the risk that future earnings denominated in Canadian dollars would be adversely affected by changes in currency exchange rates. We do not apply hedge accounting and therefore the net change in the fair value of the contracts, which totaled a gain of $0.4 million and ~~$0.9 million in fiscal years 2016 and 2015, respectively, was recognized as~~ a ~~component~~loss 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 receivables denominated in Canadian dollars being hedged. On March 26, 2016, we had a foreign exchange contract, which matured in April 2016, outstanding in the notional amount of $5.7 million. The foreign exchange contract was renewed in April 2016 and continues to be in place. We do not use hedging arrangements for speculative purposes.

~~Board of Directors and Shareholders~~
~~Transcat, Inc.~~
~~Rochester, New York~~

We have audited the accompanying consolidated balance sheets of Transcat, Inc. and its subsidiaries (“the Company”) as of March 26, 2016 and March 28, 2015 and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for the fiscal years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Transcat, Inc. and its subsidiaries as of March 26, 2016 and March 28, 2015, and the results of their operations and their cash flows for the fiscal years then ended, in conformity with accounting principles generally accepted in the United States.

~~TRANSCAT, INC.~~
~~CONSOLIDATED STATEMENTS OF INCOME~~
~~(In Thousands, Except Per Share Amounts)~~

~~TRANSCAT, INC.~~
~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~
~~(In Thousands)~~

For the Years Ended
March 26,       March 28,
2016 2015
Net Income $ 4,124 $ 4,026

Other Comprehensive Income (Loss):
       Currency Translation Adjustment (202 ) (652 )
       Unrecognized Prior Service Cost (Benefit), net of tax of $26 and $29 for the years
              ended March 26, 2016 and March 28, 2015, respectively 41 (46 )
       Unrealized Loss on Other Asset, net of tax of $34 and $8 for the years ended
              March 26, 2016 and March 28, 2015, respectively (54 ) (12 )
                     Total Other Comprehensive (Loss) Income (215 ) (710 )
Comprehensive Income $ 3,909 $ 3,316

~~TRANSCAT, INC.~~
~~CONSOLIDATED BALANCE SHEETS~~
~~(In Thousands, Except Share and Per Share Amounts)~~

~~TRANSCAT, INC.~~
~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~
~~(In Thousands)~~

~~TRANSCAT, INC.~~
~~CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY~~
~~(In Thousands, Except Per Share Amounts)~~

~~TRANSCAT, INC.~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~(In Thousands, Except Per Share and Per Unit Amounts)~~

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

The Consolidated Financial Statements of Transcat include the accounts of Transcat and the Company’s wholly-owned subsidiaries, Transcat Canada Inc., United Scale & Engineering Corporation, WTT Real Estate Acquisition, LLC and Anacor Acquisition, LLC. All intercompany balances and transactions have been eliminated in consolidation.

The preparation of Transcat’s Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States (“GAAP”) requires that the Company make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are used for, but not limited to, allowance for doubtful accounts and returns, inventory reserves, estimated levels of achievement for performance-based restricted stock units, fair value of stock options, depreciable lives of fixed assets, estimated lives of major catalogs and intangible assets, and the valuation of assets acquired and liabilities assumed in business acquisitions. Future events and their effects cannot be predicted with certainty; accordingly, accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of the Consolidated Financial Statements will change as new events occur, as more experience is acquired, as additional information is obtained, and as the operating environment changes. Actual results could differ from those estimates. Such changes and refinements in estimation methodologies are reflected in reported results of operations in the period in which the changes are made and, if material, their effects are disclosed in the Notes to the Consolidated Financial Statements.

Transcat operates on a 52/53 week fiscal year, ending the last Saturday in March. In a 52-week fiscal year, each of the four quarters is a 13-week period. In a 53-week fiscal year, the last quarter is a 14-week period. The fiscal years ended March 26, 2016 (“fiscal year 2016”) and March 28, 2015 (“fiscal year 2015”) consisted of 52 weeks.

Accounts receivable represent amounts due from customers in the ordinary course of business. These amounts are recorded net of the allowance for doubtful accounts and returns in the Consolidated Balance Sheets. The allowance for doubtful accounts is based upon the expected collectability of accounts receivable. Transcat applies a specific formula to its accounts receivable aging, which may be adjusted on a specific account basis where the formula may not appropriately reserve for loss exposure. After all attempts to collect a receivable have failed, the receivable is written-off against the allowance for doubtful accounts. The returns reserve is calculated based upon the historical rate of returns applied to revenues over a specific timeframe. The returns reserve will increase or decrease as a result of changes in the level of revenue and/or the historical rate of returns.

Inventory consists of products purchased for resale and is valued at the lower of cost or market. Costs are determined using the average cost method of inventory valuation. Inventory is reduced by a reserve for items not saleable at or above cost by applying a specific loss factor, based on historical experience, to specific categories of inventory. The Company evaluates the adequacy of the reserve on a quarterly basis. At March 26, 2016 and March 28, 2015, the Company had reserves for inventory losses totaling $0.5 million and $0.4 million, respectively.

~~Property and equipment are stated at cost. Depreciation and amortization are computed primarily under the straight-line method over the following estimated useful lives:~~

Property and equipment determined to have no value are written off at their then remaining net book value. Transcat capitalizes certain costs incurred in the procurement and development of computer software used for internal purposes. Leasehold improvements are amortized under the straight-line method over the estimated useful life or the lease term, whichever is shorter. Maintenance and repairs are expensed as incurred. See Note 2 for further information on property and equipment.

The Company applies the acquisition method of accounting for business acquisitions. Under the acquisition method, the purchase price of an acquisition is allocated to the underlying tangible and intangible assets acquired and liabilities assumed based on their respective fair values at the date of acquisition. The Company uses a valuation hierarchy, as further described under Fair Value of Financial Instruments below, and typically utilizes independent third-party valuation specialists to determine the fair values used in this allocation. Purchase price allocations are subject to revision within the measurement period, not to exceed one year from the date of acquisition. Administration costs to acquire a business may include, but are not limited to, fees for accounting, legal and valuation services, and are recorded as incurred in the Consolidated Statement of Income.

Goodwill represents the excess of the purchase price over the values assigned to the underlying net assets of an acquired business. Other intangible assets, namely customer base and covenants not to compete, represent an allocation of purchase price to identifiable intangible assets of an acquired business. The Company estimates the fair value of its reporting units using the fair market value measurement requirement.

The Company tests goodwill for impairment on an annual basis, or immediately if conditions indicate that such impairment could exist. Other intangible assets are evaluated for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company determined that no impairment was indicated as of March 26, 2016 and March 28, 2015. A summary of changes in the Company’s goodwill and intangible assets is as follows:

The intangible assets are being amortized on an accelerated basis over their estimated useful life of up to 10 years. Amortization expense relating to intangible assets is expected to be $2.0 million in fiscal year 2017, $1.6 million in fiscal year 2018, $1.3 million in fiscal year 2019, $1.0 million in fiscal year 2020 and $0.8 million in fiscal year 2021.

Transcat capitalizes the cost of each Master Catalog mailed and amortizes the cost over the respective catalog’s estimated productive life. The Company reviews response results from catalog mailings on a continuous basis, and if warranted, modifies the period over which costs are recognized. The Company amortizes the cost of each Master Catalog over an eighteen-month period and amortizes the cost of each catalog supplement over a three-month period. Total unamortized catalog costs, included as a component of prepaid expenses and other current assets on the Consolidated Balance Sheets, were $0.1 million and $0.2 million as of March 26, 2016 and March 28, 2015, respectively.

Transcat accounts for certain income and expense items differently for financial reporting purposes than for income tax reporting purposes. Deferred taxes are provided in recognition of these temporary differences. If necessary, a valuation allowance on net deferred tax assets is provided for items for which it is more likely than not that the benefit of such items will not be realized based on an assessment of both positive and negative evidence. See Note 4 for further discussion on income taxes.

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 March 26, 2016 and March 28, 2015, investment assets totaled $0.7 million and $0.9 million, respectively, and are included as a component of other assets (non-current) on the Consolidated Balance Sheets.

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 fiscal years 2016 and 2015, the Company recorded non-cash stock-based compensation cost in the amount of $0.4 million and $0.5 million, respectively, in the Consolidated Statements of Income.

The estimated fair value of options granted in fiscal year 2015 was calculated using the Black-Scholes-Merton pricing model (“Black-Scholes”), which produced a weighted average fair value of $1.41 per share. No options were granted during fiscal year 2016.

~~The following are the weighted average assumptions used in the Black-Scholes model:~~

The Black-Scholes model incorporates assumptions to value stock-based awards. The risk-free rate of return for periods within the contractual life of the award was based on a zero-coupon U.S. government instrument over the contractual term of the equity instrument. Expected volatility was based on historical volatility of the Company’s stock. The expected option term represented the period that stock-based awards are expected to be outstanding based on the simplified method, which averages an award’s weighted-average vesting period and expected term for “plain vanilla” share options. Options are considered to be “plain vanilla” if they have the following basic characteristics: granted “at-the-money”; exercisability is conditioned upon service through the vesting date; termination of service prior to vesting results in forfeiture; limited exercise period following termination of service; and options are non-transferable and non-hedgeable. The Company will continue to use the simplified method until it has the historical data necessary to provide a reasonable estimate of expected life.

Distribution sales are recorded when an order’s title and risk of loss transfers to the customer. The Company recognizes the majority of its Service revenue based upon when the calibration or other activity is performed and then shipped and/or delivered to the customer. Some Service revenue is generated from managing customers’ calibration programs in which the Company recognizes revenue in equal amounts at fixed intervals. The Company generally invoices its customers for freight, shipping, and handling charges. Provisions for customer returns are provided for in the period the related revenue is recorded based upon historical data.

Vendor rebates are generally based on specified cumulative level of purchases and/or incremental distribution sales and are recorded as a reduction of cost of distribution sales. Purchase rebates are calculated and recorded quarterly based upon the volume of purchases with specific vendors during the quarter. Point of sale rebate programs that are based on year-over-year sales performance on a calendar year basis are recorded as earned, on a quarterly basis, based upon the expected level of annual achievement. Point of sale rebate programs that are based on year-over-year sales performance on a quarterly basis are recorded as earned in the respective quarter. The Company recorded vendor rebates of $0.9 million and $0.3 million in fiscal years 2016 and 2015, respectively.

Transcat records cash consideration received from a vendor for advertising as a reduction of cost of distribution sales as the related inventory is sold. The Company recorded consideration in the amount of $2.0 million and $2.2 million in fiscal years 2016 and 2015, respectively.

Advertising costs, other than catalog costs, are expensed as they are incurred and are included in Selling, Marketing and Warehouse Expenses in the Consolidated Statements of Income. Advertising costs were approximately $1.2 million and $1.6 million in fiscal years 2016 and 2015, respectively.

Freight expense and direct shipping costs are included in the cost of revenue. These costs totaled approximately $1.8 million in each of fiscal years 2016 and 2015. Direct handling costs, the majority of which represent direct compensation of employees who pick, pack, and prepare merchandise for shipment to customers, are reflected in selling, marketing and warehouse expenses. Direct handling costs were $0.9 million in fiscal years 2016 and 2015.

The accounts of Transcat Canada Inc. 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 business transactions denominated in foreign currency. The net foreign currency loss was $0.1 million in fiscal year 2015 and~~ less than $0.1 million induring fiscal year 2016. The Company continually utilizes short-term foreign exchange forward contracts to reduce the risk that its earnings would be adversely affected by changes in currency exchange rates. The Company does not apply hedge accounting2023 and ~~therefore the net change in the fair value of the contracts, which totaled a net gain of $0.4 million in fiscal year 2016 and a net gain of $0.9 million in 2015,~~2022, respectively, 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 March ~~26, 2016, the Company~~25, 2023, we had a foreign exchange contract, which matured in April ~~2016,~~2023, outstanding in the notional amount of ~~$5.7~~$2.5 million. ~~This~~The foreign exchange contract was ~~subsequently~~ renewed in April 2023 and ~~remains~~continues to be in place. ~~The Company does~~We do not use hedging arrangements for speculative purposes.

Comprehensive income is composed of currency translation adjustments, unrecognized prior service costs, net of tax, and unrealized gains or losses on other assets, net of tax. At March 26, 2016, accumulated other comprehensive income consisted of cumulative currency translation losses of $0.3 million, unrecognized prior service costs, net of tax, of $0.1 million and an unrealized gain on other assets, net of tax, of less than $0.1 million. At March 28, 2015, accumulated other comprehensive income consisted of cumulative currency translation losses of less than $0.1 million, unrecognized prior service costs, net of tax, of $0.1 million and an unrealized gain on other assets, net of tax, of less than $0.1 million.

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 which 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 each of fiscal years 2016 and 2015, the net additional common stock equivalents had a $.02 per share effect on the calculation of dilutive earnings per share. The average shares outstanding used to compute basic and diluted earnings per share are as follows:

~~Shareholders’ Equity~~ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

~~During each of fiscal years 2016 and 2015, the Company repurchased and subsequently retired less than 0.1 million shares of its common stock.~~

~~Recently Issued Accounting Pronouncements~~INDEX TO FINANCIAL STATEMENTS

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Compensation-Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016. Early adoption is permitted in any annual or interim period. If an entity early adopts in an interim period, any adjustments should be reflected as of the beginning of fiscal year that includes that interim period and the entity must adopt all of the amendments from ASU 2016-09 in the same period. The Company expects to adopt this ASU in the first quarter of fiscal year 2017 and does not expect adoption to have a material impact on the Consolidated Financial Statements.

		Page
Management's Annual Report on Internal Control over Financial Reporting		38
Report of Independent Registered Public Accounting Firm (PCAOB ID 317)		39
Consolidated Statements of Income for the Fiscal Years Ended March 25, 2023, March 26, 2022 and March 27, 2021		41
Consolidated Statements of Comprehensive Income for the Fiscal Years Ended March 25, 2023, March 26, 2022 and March 27, 2021		42
Consolidated Balance Sheets as of March 25, 2023 and March 26, 2022		43
Consolidated Statements of Cash Flows for the Fiscal Years Ended March 25, 2023, March 26, 2022 and March 27, 2021		44
Consolidated Statements of Changes in Shareholders’ Equity for the Fiscal Years Ended March 25, 2023, March 26, 2022 and March 27, 2021		45
Notes to Consolidated Financial Statements		46

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU indicates that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. ASU 2014-09 permits the use of either the retrospective or cumulative effect transition method. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606) - Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 to annual reporting periods beginning after December 15, 2017, with earlier application permitted as of annual reporting periods beginning after December 15, 2016. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606) - Principal versus Agent Considerations, to clarify the implementation guidance on principal versus agent. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606) - Identifying Performance Obligations and Licensing, which clarifies the identifying performance obligations and licensing implementation guidance. The Company is currently evaluating the impact of adopting these ASU’s and the methods of adoption; however, the Company does not expect adoption of these ASU’s to have a material impact on its Consolidated Financial Statements. See Note 1 “Revenue Recognition” for a description of the Company’s current revenue recognition policy.

In February 2016, the FASB issued ASU 2016-02 to Topic 842, Leases. This ASU requires companies to recognize all leases as assets and liabilities on the consolidated balance sheet. Under this ASU, there continues to be a differentiation between finance leases and operating leases. As a result, the recognition, measurement, and presentation of expenses and cash flows arising from a lease have not significantly changed from previous GAAP. However, the principal difference from previous guidance is that the lease assets and lease liabilities arising from operating leases should be recognized on the Consolidate Balance Sheet. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Earlier adoption is permitted. The Company is currently evaluating the impact that the adoption of this ASU will have on its Consolidated Financial Statements.

In November 2015, the FASB issued 2015-17 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 financial statements issued for annual periods beginning after December 15, 2016 and may be applied either prospectively to all

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deferred tax liabilities and assets or retrospectively to all periods presented. Early adoption of this ASU is permitted. The Company adopted this ASU in the fourth quarter of fiscal year 2016 on a prospective basis. This adoption did not have a material impact on the Consolidated Financial Statements.

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330) -Simplifying the Measurement of Inventory. ASU 2015-11 requires inventory that is recorded using the first-in, first-out method to be measured at the lower of cost or net realizable value. ASU 2015-11 is effective for annual and interim periods beginning after December 15, 2016, and should be applied prospectively with early adoption permitted at the beginning of an interim or annual reporting period. The Company does not expect adoption of this ASU to have a material impact on its Consolidated Financial Statements.

~~Reclassification of Amounts~~Management’s Annual Report on Internal Control over Financial Reporting

~~Certain reclassifications of financial information for prior fiscal years have been made to conform to the presentation for the current fiscal year.~~

~~Subsequent Events~~

On March 31, 2016, the Company entered into Amendment 3 to its Credit Agreement (“Amendment 3”), which amends the Credit Agreement to add a $10.0 million term loan, expanding total borrowings available to $40.0 million. Amendment 3 also amends the Credit Agreement to allow borrowings for business acquisitions of up to $20.0 million for fiscal year 2017 and $15.0 million for each fiscal year thereafter. The term loan matures on March 31, 2021 and is considered a LIBOR Loan. Amendment 3 also increased the allowable leverage ratio to 3.0 to 1.0, from 2.75 to 1.0.

Required repayments under the term loan began in April 2016 in the amount of $0.1 million per month plus interest. Annual repayment amounts of $1.4 million are required in fiscal years 2017 through 2021 with a $3.0 million repayment required in fiscal year 2022.

On April 1, 2016, the Company acquired substantially all of the assets of Excalibur, a California based provider of calibration services, new and used test equipment, and product rentals for approximately $7.4 million, of which $6.6 million was paid at closing. The remainder of the purchase price was held back under typical indemnification provisions and is expected to be paid-out in the fourth quarter of fiscal year 2017.

The allocation of the Excalibur purchase price to the fair value of the net assets acquired and pro forma financial results were not yet available at the time this report was filed due to the proximity of the filing date to the date of acquisition. Goodwill equal to the amount of purchase price paid in excess of the fair value of the underlying net assets of Excalibur is expected to be recorded during the first quarter of fiscal year 2017. Acquisition costs related to this acquisition of approximately $0.1 million were incurred and recorded as administrative expenses in the Consolidated Statement of Income in fiscal year 2016. The results of operations of this acquisition will be included with the results of the Company from the date of acquisition.

~~NOTE 2 – PROPERTY AND EQUIPMENT~~

~~Property and equipment consist of:~~

March 26, March 28,
       2016        2015
Machinery, Equipment and Software $ 29,833 $ 26,081
Rental Equipment 1,243 585
Furniture and Fixtures 2,326 2,132
Leasehold Improvements 2,281 1,989
Buildings and Land 500 500
       Total Property and Equipment 36,182 31,287
Less: Accumulated Depreciation and Amortization (23,869 ) (21,890 )
       Total Property and Equipment, net $ 12,313 $ 9,397

~~Total depreciation and amortization expense relating to property and equipment amounted to $2.3 million and $1.7 million in fiscal years 2016 and 2015, respectively.~~

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~~NOTE 3 – LONG-TERM DEBT~~

~~Description~~

Transcat, through its Credit Agreement which matures September 20, 2018, has a Revolving Credit Facility which allows for maximum borrowings of $30.0 million. The Revolving Credit Facility is subject to a maximum borrowing restriction based on a 2.75 multiple of earnings before income taxes, depreciation and amortization, and non-cash stock-based compensation expense for the preceding four consecutive fiscal quarters. As of March 26, 2016, $30.0 million was available under the Revolving Credit Facility, of which $19.1 million was outstanding and included in long-term debt on the Consolidated Balance Sheets. See Note 1 for discussion of Amendment 3 to the Revolving Credit Facility on March 31, 2016.

Except as otherwise provided for in Amendment 3 to the Credit Agreement and as described in Note 1, borrowings available under the Credit Agreement for business acquisitions are limited to $15.0 million in any fiscal year. During fiscal year 2016, the Company borrowed $13.9 million for business acquisitions.

~~Interest and Other Costs~~

Interest on the Revolving Credit Facility accrues, at Transcat’s election, at either the one-month London Interbank Offered Rate (“LIBOR”), adjusting daily, or a fixed rate for a designated period at the LIBOR corresponding to such period; in each case, plus a margin. Commitment fees accrue based on the average daily amount of unused credit available on the Revolving Credit Facility. Interest rate margins and commitment fees are determined on a quarterly basis based upon the Company’s calculated leverage ratio, as defined in the Credit Agreement. The one-month LIBOR as of March 26, 2016 was 0.4%. The Company’s interest rate for fiscal year 2016 ranged from 1.3% to 1.9%.

~~Covenants~~

The Credit Agreement has certain covenants with which the Company has to comply, including a fixed charge ratio covenant and a leverage ratio covenant. The Company was in compliance with all loan covenants and requirements throughout fiscal year 2016.

~~Other Terms~~

The Company has pledged all of its U.S. tangible and intangible personal property, the equity interests of its U.S.-based subsidiaries, and a majority of the common stock of Transcat Canada Inc. as collateral security for the loans made under the Revolving Credit Facility.

~~NOTE 4 – INCOME TAXES~~

~~Transcat’s net income before income taxes on the Consolidated Statements of Income is as follows:~~

       FY 2016        FY 2015
United States    $ 5,760       $ 6,115
Foreign 247 308
       Total $ 6,007 $ 6,423

~~The provision for income taxes for fiscal years 2016 and 2015 is as follows:~~

     FY 2016        FY 2015
Current Tax Provision:
       Federal $ 1,367 $ 1,200
       State 202 311
       Foreign 174 107
   1,743 1,618
Deferred Tax (Benefit) Provision:
       Federal $ 266 $ 776
       State 85 64
       Foreign (211 ) (61 )
   140 779
Provision for Income Taxes $ 1,883 $ 2,397

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A reconciliation of the income tax provision computed by applying the statutory U.S. federal income tax rate and the income tax provision reflected in the Consolidated Statements of Income is as follows:

FY 2016 FY 2015
Federal Income Tax at Statutory Rate $ 2,042 $ 2,184
State Income Taxes, net of federal benefit 226 220
Federal, State & Foreign Research & Development Credits (479 ) 0
Other, net 94 (7 )
Total $ 1,883 $ 2,397

~~The components of net deferred tax assets (liabilities) are as follows:~~

March 26, March 28,
      2016       2015
Deferred Tax Assets:
       Accrued Liabilities $ 399 $ 384
       Performance-Based Grants 335 395
       Inventory Reserves 163 143
       Non-Qualified Deferred Compensation Plan 273 362
       Post-retirement Health Care Plans 387 385
       Stock-Based Compensation 808 810
       Capitalized Inventory Costs 117 112
       Net Operating Loss Carryforward 133 —
       Other 313 151
              Total Deferred Tax Assets $ 2,928 $ 2,742
Deferred Tax Liabilities:
       Goodwill and Intangible Assets $ (1,865 ) $ (1,754 )
       Depreciation (2,127 ) (1,544 )
       Other (7 ) (80 )
              Total Deferred Tax Liabilities (3,999 ) (3,378 )
              Net Deferred Tax (Liabilities) Assets $ (1,071 ) $ (636 )

Deferred U.S. income taxes have not been recorded for basis differences related to the investments in the Company’s foreign subsidiary. The Company considers undistributed earnings, if any, as permanently reinvested in the subsidiary. The determination of a deferred tax liability on unremitted earnings would not be practicable because such liability, if any, would depend on circumstances existing if and when remittance occurs.

The Company files income tax returns in the U.S. federal jurisdiction, various states and Canada. The Company is no longer subject to examination by U.S. federal income tax authorities for fiscal years 2013 and prior, by state tax authorities for fiscal years 2010 and prior, and by Canadian tax authorities for fiscal years 2008 and prior. There are no tax years currently under examination by U.S. federal, state or Canadian tax authorities.

During fiscal years 2016 and 2015, there were no uncertain tax positions, and the Company expects no material uncertain tax positions within the next twelve months. The Company recognizes interest and penalties, if any, related to uncertain tax positions in the provision for income taxes. No interest or penalties related to uncertain tax positions were recognized in fiscal years 2016 and 2015 or were accrued at March 26, 2016 and March 28, 2015.

At March 26, 2016, the deferred tax asset related to U.S. federal net operating loss carryforwards of approximately $0.1 million and U.S. state net operating loss carryforwards of less than $0.1 million are available to reduce future taxable income. The utilization of these losses is subject to an annual limitation due to ownership change rules set forth under Internal Revenue Code Section 382.

The Company’s effective tax rate for fiscal years 2016 and 2015 was 31.3% and 37.3%, respectively. Its tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amounts of income we earn in those jurisdictions, which we expect to be fairly consistent in the near term. It is also affected by discrete items that may

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occur in any given year but are not consistent from year to year. The most significant impact on the difference between the Company’s statutory U.S. federal income tax rate of 34.0% and effective tax rate was the cumulative impact of research and development credits of $0.5 million, of which $0.3 million relates to prior periods.

The Company expects to receive certain federal and state tax credits in future years, but not to the extent that they were received in fiscal year 2016. As such, we expect our effective tax rate to be higher in future years than it was in fiscal year 2016.

~~NOTE 5 – EMPLOYEE BENEFIT PLANS~~

~~Defined Contribution Plan~~

All of Transcat’s U.S.-based employees are eligible to participate in a defined contribution plan, the Long-Term Savings and Deferred Profit Sharing Plan (the “Plan”), provided they meet certain qualifications.

In the long-term savings portion of the Plan (the “401K Plan”), plan participants are entitled to a distribution of their vested account balance upon termination of employment or retirement. Plan participants are fully vested in their contributions while Company contributions are fully vested after three years of service. The Company’s matching contributions to the 401K Plan were $0.6 million and $0.5 million in fiscal years 2016 and 2015, respectively.

In the deferred profit sharing portion of the Plan, Company contributions are made at the discretion of the board of directors. The Company made no profit sharing contributions in fiscal years 2016 and 2015.

~~Non-Qualified Deferred Compensation Plan~~

The Company has available a non-qualified deferred compensation plan (the “NQDC Plan”) for directors and officers. Participants are fully vested in their contributions. At its discretion, the Company may elect to match employee contributions, subject to legal limitations in conjunction with the 401K Plan, which fully vest after three years of service. During fiscal years 2016 and 2015, the Company did not match any employee contributions. Participant accounts are adjusted to reflect performance, whether positive or negative, of selected investment options chosen by each participant during the deferral period. In the event of bankruptcy, the assets of the NQDC Plan are available to satisfy the claims of the Company’s general creditors. The liability for compensation deferred under the NQDC Plan was $0.7 million as of March 26, 2016 and $0.9 million as of March 28, 2015 and is included as a component of other liabilities (non-current) on the Consolidated Balance Sheets.

~~Post-retirement Health Care Plans~~

The Company has a defined benefit post-retirement health care plan which provides long-term care insurance benefits, medical and dental insurance benefits and medical premium reimbursement benefits to eligible retired corporate officers and their eligible spouses (the “Officer Plan”).

~~The change in the postretirement benefit obligation is as follows:~~

FY 2016 FY 2015
Post-retirement benefit obligation, at beginning of fiscal year $ 1,001 $ 882
Service cost 34 19
Interest cost 37 39
Benefits paid (70 ) (56 )
Actuarial loss 4 117
Post-retirement benefit obligation, at end of fiscal year 1,006 1,001
Fair value of plan assets, at end of fiscal year — —
Funded status, at end of fiscal year $ (1,006 ) $ (1,001 )
Accumulated post-retirement benefit obligation, at end of fiscal year $ 1,006 $ 1,001

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The accumulated postretirement benefit obligation is included as a component of other liabilities (non-current) in the Consolidated Balance Sheets. The components of net periodic postretirement benefit cost and other amounts recognized in other comprehensive income are as follows:

       FY 2016        FY 2015
Net periodic postretirement benefit cost:
       Service cost $ 34 $ 19
       Interest cost 37 39
       Amortization of prior service cost 58 58
   129 116
Benefit obligations recognized in other comprehensive income:
       Amortization of prior service cost (58 ) (58 )
       Net gain (loss) (8 ) 133
   (66 ) 75
Total recognized in net periodic benefit cost and other comprehensive income $ 63 $ 191
Amount recognized in accumulated other comprehensive income,
       at end of fiscal year:
              Unrecognized prior service cost $ 162 $ 229

The prior service cost is amortized over the average remaining life expectancy of active participants for the Officer Plan. The estimated prior service cost that will be amortized from accumulated other comprehensive income into net periodic postretirement benefit cost during fiscal year 2017 is less than $0.1 million.

The postretirement benefit obligation was computed by an independent third-party actuary. Assumptions used to determine the postretirement benefit obligation and the net periodic postretirement benefit cost were as follows:

       March 26,        March 28,
2016 2015
Weighted average discount rate 3.9% 3.8%
Medical care cost trend rate:
       Trend rate assumed for next year 8.0% 8.0%
       Ultimate trend rate 6.0% 5.0%
       Year that rate reaches ultimate trend rate 2022 2023
Dental care cost trend rate:
       Trend rate assumed for next year and remaining at that level thereafter 5.0% 5.0%

Benefit payments are funded by the Company as needed. Payments toward the cost of a retiree’s medical and dental coverage are initially determined as a percentage of a base coverage plan in the year of retirement and are limited to increase at a rate of no more than 50% of the annual increase in medical and dental costs, as defined in the plan document. The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows:

Fiscal Year Amount
2017 $ 75
2018 63
2019 57
2020 60
2021 69
Thereafter 682

Increasing the assumed health care cost trend rate by one percentage point would increase the accumulated postretirement benefit obligation and the annual net periodic postretirement benefit cost by $0.1 million. A one percentage point decrease in the healthcare cost trend would decrease the accumulated postretirement benefit obligation and the annual net periodic postretirement benefit cost by $0.1 million.

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~~NOTE 6 – STOCK-BASED COMPENSATION~~

The Transcat, Inc. 2003 Incentive Plan, as Amended and Restated (the “2003 Plan”), provides for, among other awards, grants of restricted stock units and stock options to directors, officers and key employees at the fair market value at the date of grant. At March 26, 2016, 1.3 million shares were available for future grant under the 2003 Plan.

~~Restricted Stock~~

The Company grants performance-based restricted stock units as a primary component of executive compensation. The units generally vest following the third fiscal year from the date of grant subject to certain cumulative diluted earnings per share growth targets over the eligible period. Compensation cost ultimately recognized for performance-based restricted stock units will equal the grant date fair market value of the unit that coincides with the actual outcome of the performance conditions. On an interim basis, the Company records compensation cost based on the estimated level of achievement of the performance conditions.

~~The following table summarizes the performance-based restricted stock units vested and shares issued during fiscal years 2015 and 2016:~~

      Total       Grant Date
      Number Fair Target Number of Date
Date Measurement of Units Value Level Shares Shares
Granted Period Granted Per Unit Achieved Issued Issued
April 2011 April 2011 - March 2014 37    $ 8.44    114% 42 May 2014
April 2012 April 2012 - March 2015 24 $ 13.11 75% 18 May 2015

~~The following table summarizes the non-vested performance-based restricted stock units outstanding as of March 26, 2016:~~

Total Grant Date Estimated
Number Fair Level of
Date Measurement of Units Value Achievement at
Granted Period Granted Per Unit March 26, 2016
April 2013 April 2013 - March 2016 99 $ 6.17 50% of target level
April 2014 April 2014 - March 2017 61 $ 9.28 50% of target level
April 2015 April 2015 - March 2018 73 $ 9.59 75% of target level

Total expense relating to performance-based restricted stock units, based on grant date fair value and the achievement criteria, was $0.2 million and $0.3 million in fiscal years 2016 and 2015, respectively. Unearned compensation totaled $0.5 million as of March 26, 2016.

During fiscal year 2016, the Company’s Board of Directors granted a stock award of two thousand shares of common stock under the 2003 Plan to a retiring board member. The award vested in the second quarter of fiscal year 2016. During fiscal year 2015, the Company’s Board of Directors granted stock awards to its Executive Chairman and to a retiring board member. The Executive Chairman received an award of ten thousand shares of common stock under the 2003 Plan. 50% this award vested in the second quarter of fiscal year 2015, and the remaining 50% vested in the second quarter of fiscal year 2016. The retiring board member received an award of two thousand shares of common stock under the 2003 Plan. This award vested in the second quarter of fiscal year 2015. Total expense relating to these stock awards, based on grant date fair value, was less than $0.1 million in fiscal year 2016 and was $0.1 million in fiscal year 2015.

~~Stock Options~~

Options generally vest over a period of up to four years, using either a graded schedule or on a straight-line basis, and expire ten years from the date of grant. The expense relating to options is recognized on a straight-line basis over the requisite service period for the entire award.

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~~The following table summarizes the Company’s options for fiscal years 2016 and 2015:~~

Weighted Weighted
Average Average
Number Exercise Remaining Aggregate
of       Price Per Contractual Intrinsic
Shares Share       Term (in Years)       Value
Outstanding as of March 29, 2014 609 $ 6.58
       Granted 10 9.66
       Exercised (58 ) 4.66
Outstanding as of March 28, 2015 561 6.83
       Exercised (50 ) 5.35
       Forfeited (1 ) 4.26
       Options Redeemed (16 ) 5.68
Outstanding as of March 26, 2016 494 7.03 3 $ 1,535
Exercisable as of March 26, 2016 414 6.92 2 1,330

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of fiscal year 2016 and the exercise price, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all holders exercised their options on March 26, 2016. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s stock.

During both of fiscal years 2016 and 2015, total expense relating to stock options was $0.1 million. Total unrecognized compensation cost related to non-vested stock options as of March 26, 2016 was $0.1 million, which is expected to be recognized over a weighted average period of one year. The aggregate intrinsic value of stock options exercised in fiscal years 2016 and 2015 was $0.2 million and $0.3 million, respectively. Cash received from the exercise of options in each of fiscal years 2016 and 2015 was $0.3 million.

~~NOTE 7 – SEGMENT AND GEOGRAPHIC DATA~~

Transcat has two reportable segments: Distribution and Service. The accounting policies of the reportable segments are the same as those described above in Note 1 to the Consolidated Financial Statements. The Company has no inter-segment sales. The following table presents segment and geographic data for fiscal years 2016 and 2015:

FY 2016 FY 2015
Revenue:
       Service $ 59,202 $ 51,801
       Distribution 62,964 71,823
              Total 122,166 123,624
Gross Profit:
       Service 15,585 14,103
       Distribution 13,534 14,984
              Total 29,119 29,087
Operating Expenses:
       Service (1) 11,430 10,410
       Distribution (1) 11,387 11,909
              Total 22,817 22,319
Operating Income:
       Service 4,155 3,693
       Distribution 2,147 3,075
              Total 6,302 6,768
Unallocated Amounts:
       Interest and Other Expense, net 295 345
       Provision for Income Taxes 1,883 2,397
              Total 2,178 2,742
Net Income $ 4,124 $ 4,026

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FY 2016 FY 2015
Total Assets:
       Service $ 48,640 $ 31,552
       Distribution 24,878 26,220
       Unallocated 3,189 4,377
              Total $ 76,707 $ 62,149
Depreciation and Amortization (2):
       Service $ 3,216 $ 2,362
       Distribution 730 728
              Total $ 3,946 $ 3,090
Capital Expenditures:
       Service $ 3,133 $ 2,409
       Distribution 968 1,091
              Total $ 4,101 $ 3,500
Geographic Data:
       Revenues to Unaffiliated Customers (3):
              United States (4) $ 109,770 $ 110,077
              Canada 10,854 11,075
              Other International 1,542 2,472
                     Total $ 122,166 $ 123,624
Long-Lived Assets:
       United States (4) $ 11,337 $ 8,782
       Canada 976 615
              Total $ 12,313 $ 9,397

~~____________________~~

~~(1)~~		~~Operating expense allocations between segments were based on actual amounts, a percentage of revenues, headcount, and management’s estimates.~~

~~(2)~~		~~Including amortization of catalog costs.~~

~~(3)~~		~~Revenues are attributed to the countries based on the destination of a product shipment or the location where service is rendered.~~

~~(4)~~		~~United States includes Puerto Rico.~~

~~NOTE 8 – COMMITMENTS~~

~~Leases~~

Transcat leases facilities, equipment, and vehicles under various non-cancelable operating leases. Total rental expense was approximately $2.4 million and $2.0 million in fiscal years 2016 and 2015, respectively. The minimum future annual rental payments under the non-cancelable leases at March 26, 2016 are as follows (in millions):

Fiscal Year
2017 $ 2.1
2018 1.9
2019 1.7
2020 0.8
2021 0.5
Thereafter 0.5
Total minimum lease payments $ 7.5

~~Effective April 2016, the Company will have term loan payments due at a monthly amount of $0.1 million plus interest. These amounts are not reflected in the table above.~~

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~~NOTE 9 – BUSINESS ACQUISITIONS~~

~~The Company has engaged in a number of business acquisitions. During fiscal years 2015 and 2016, Transcat completed the following:~~

●	On August 31, 2014, acquired Ulrich Metrology Inc. (“Ulrich”). Headquartered in Montreal, Quebec, Ulrich is a provider of accredited and commercial calibrations throughout Canada that specializes in providing custom metrology solutions for the aerospace and defense, industrial manufacturing and life science industries.

●	On March 6, 2015, acquired substantially all of the assets of Apex Metrology Solutions (“Apex”). Apex is a provider of accredited and commercial calibrations, specializing in 3D metrology services, through its ISO 17025 accredited lab located in Ft. Wayne, Indiana.

●	On June 22, 2015, acquired substantially all of the assets of Calibration Technologies, Inc., a regional provider of analytical instrument services including qualification, validation, repair and installation, headquartered in Morris Plains, New Jersey.

●	Effective August 24, 2015, acquired Anmar Metrology, Inc. (“Anmar”), a calibration and repair service provider with significant focus on the life science and defense market, headquartered in San Diego, California.

●	~~On August 25, 2015, acquired Nordcal Calibration Inc. (“Nordcal”), a provider of radio frequency and electronic calibration and repair services, located in Montreal, Quebec.~~

●	Effective December 31, 2015, acquired substantially all of the assets of Spectrum Technologies, Inc. (“Spectrum”). Headquartered in Paxinos, Pennsylvania, Spectrum provides commercial calibrations, test equipment repair services and product sales throughout North America.

●	Effective January 18, 2016, acquired Dispersion Laboratory Inc. (“Dispersion”), 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.

These transactions align with the Company’s acquisition strategy of targeting service businesses that expand the Company’s geographic reach and leverage its infrastructure while also increasing the depth and breadth of the Company’s service capabilities.

The acquisitions were accounted for using the acquisition method of accounting. Goodwill, calculated as the excess of the purchase price paid over the fair value of the underlying net assets of the businesses acquired, generally represents expected future economic benefits arising from the reputation of an acquired business, the assembled workforce, expected synergies and other assets acquired that could not be individually identified and separately recognized. Other intangible assets, namely customer bases and covenants not to compete, represent an allocation of a portion of the purchase price to identifiable intangible assets of the acquired businesses. Intangible assets are being amortized for financial reporting purposes on an accelerated basis over an estimated useful life of up to 10 years. Amortization of goodwill and the intangible assets relating to the Ulrich, Anmar, Nordcal and Dispersion acquisitions is not expected to be deductible for tax purposes.

The total purchase price paid for the businesses acquired in fiscal year 2016 was approximately $13.9 million, net of $0.2 million cash acquired. The total purchase price paid for the businesses acquired in fiscal year 2015 was approximately $7.3 million, net of $0.1 million cash acquired. The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of assets and liabilities acquired during each period presented:

FY 2016 FY 2015
       Goodwill $ 8,421       $ 4,392
       Intangible Assets – Customer Base 5,617 2,179
       Intangible Assets – Covenants Not to Compete 509 114
       Deferred Tax Liability (299 ) (711 )
14,248 5,974
       Plus:       Current Assets 1,257 872
Non-Current Assets 1,198 669
       Less: Current Liabilities (2,809 ) (236 )
Total Purchase Price $ 13,894 $ 7,279

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The business acquisitions completed during fiscal year 2016 contain holdback provisions, as defined by the respective purchase agreements. The Company accrues contingent consideration, if any, based on its estimated fair value at the date of acquisition, in addition to other amounts relating to the holdback provisions. No contingent consideration or other holdback amounts were paid during fiscal years 2015 or 2016. As of March 26, 2016, $0.8 million of contingent consideration and $1.6 million of other holdback amounts were unpaid and reflected in current liabilities on the Consolidated Balance Sheet. As of March 28, 2015, contingent consideration and other holdback amounts totaling less than $0.1 million were unpaid and reflected in current liabilities on the Consolidated Balance Sheet.

During fiscal year 2016, acquisition costs of $0.6 million were incurred and recorded as administrative expenses in the Consolidated Statement of Income. Acquisition costs of $0.2 million were incurred and recorded in fiscal year 2015.

The results of the acquired businesses are included in Transcat’s consolidated operating results as of the date the businesses were acquired. The following unaudited pro forma information presents the Company’s results of operations as if the acquisitions had occurred at the beginning of the respective fiscal year. The pro forma results do not purport to represent what the Company’s results of operations actually would have been if the transactions had occurred at the beginning of each period presented or what the Company’s operating results will be in future periods.

(Unaudited)
For the Years Ended
March 26, 2016 March 28, 2015
Total Revenue $ 128,516 $ 135,474
Net Income 5,161 5,509
Basic Earnings Per Share 0.75 0.81
Diluted Earnings Per Share 0.72 0.78

~~NOTE 10 – QUARTERLY DATA (UNAUDITED)~~

~~The following table presents a summary of certain unaudited quarterly financial data for fiscal years 2016 and 2015:~~

Basic Diluted
Total Gross Net Earnings Earnings
Revenues       Profit       Income       Per Share (a)       Per Share (a)
FY 2016:
       Fourth Quarter $ 32,860 $ 8,542 $ 1,577 $ 0.22 $ 0.22
       Third Quarter 30,160 6,788 1,682 0.15 0.15
       Second Quarter 29,476 6,737 878 0.13 0.12
       First Quarter 29,670 7,062 601 0.09 0.08

FY 2015:
       Fourth Quarter $ 32,342 $ 8,498 $ 1,909 $ 0.28 $ 0.27
       Third Quarter 31,052 6,994 813 0.12 0.11
       Second Quarter 31,111 6,926 859 0.13 0.12
       First Quarter 29,119 6,669 445 0.07 0.06

~~____________________~~

~~(a)~~

Earnings per share calculations for each quarter include the weighted average effect of stock issuances and common stock equivalents for the quarter; therefore, the sum of quarterly earnings per share amounts may not equal full-year earnings per share amounts, which reflect the weighted average effect on an annual basis. Diluted earnings per share calculations for each quarter include the effect of stock options and non-vested restricted stock units, when dilutive to the quarter. In addition, basic earnings per share and diluted earnings per share may not add due to rounding.

~~Table of Contents~~

~~ITEM 9.~~

~~CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE~~

~~None.~~

~~ITEM 9A. CONTROLS AND PROCEDURES~~

~~(a) CONCLUSION REGARDING THE EFFECTIVENESS OF DISCLOSURE CONTROLS AND PROCEDURES~~

Our principal executive officer and our principal financial officer evaluated our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934, as amended (“the Exchange Act”) Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this annual report. Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our principal executive officer and principal financial officer to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of such date.

~~(b) MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING~~

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. In designing and evaluating our internal control system, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives and that the effectiveness of any system has inherent limitations including, but not limited to, the possibility of human error and the circumvention or overriding of controls and procedures. Management, including the principal executive officer and the principal financial officer, is required to apply judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected in a timely manner.

An evaluation was performed under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, of the effectiveness of the design and operation of our procedures and internal control over financial reporting using the framework and criteria described in theInternal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management, including our principal executive officer and our principal financial officer, concluded that our internal control over financial reporting was effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles as of March 25, 2023.

Freed Maxick CPAs, P.C., our independent registered public accounting firm, has audited and reported on the consolidated financial statements of the Company and the Company’s internal control over financial reporting, as stated in their report included in this Annual Report on Form 10-K.

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders

Transcat, Inc.

Rochester, New York

Opinions on the Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of Transcat, Inc. and subsidiaries (the Company) as of March 25, 2023 and March 26, ~~2016.~~2022, and the related consolidated statements of income, comprehensive income, cash flows and changes in shareholders' equity for each of the three years in the period ended March 25, 2023, and the related notes to the consolidated financial statements (collectively, the financial statements). We also have audited the Company’s internal control over financial reporting as of March 25, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

~~This annual report~~

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 25, 2023 and March 26, 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended March 25, 2023, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 25, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

Basis for Opinions

The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's financial statements and an opinion on the company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Business Combinations

Critical Audit Matter Description

As discussed in Notes 1 and 9 to the consolidated financial statements, during the year ended March 25, 2023, the Company completed multiple business combinations for an aggregate purchase of approximately $9.9 million. The Company applied the acquisition method of accounting for the acquisitions. Under this method, identifiable assets acquired, liabilities assumed, and consideration transferred are measured at their acquisition-date fair value. Assumptions used include the weighted-average cost of capital, risk free rate, asset volatility, customer attrition, as well as forecasted revenue and EBITDA. Aggregate intangible assets and goodwill represented an allocation of purchase price in the amount of $3.6 million and $5.1 million, respectively. As a result of a business combination in the prior year the Company is still obligated under a contingent consideration arrangement where the potential payout is up to $7,125,000.

The Company’s determination of the fair value of assets acquired and contingent consideration related to a prior acquisition is based upon assumptions of the future performance of the acquisitions and other factors. Due to the subjectivity involved we identified the fair value estimate of assets acquired and contingent consideration as a critical audit matter, which required a higher degree of auditor judgement as well as the use of professionals with specialized skill and knowledge. If, as a result of remeasurement, the value of the contingent consideration changes, any charges or income will be included in the Company’s Consolidated Statements of Income.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the estimation of fair value of assets acquired and contingent consideration associated with the business combinations included the following, among others:

	●	We obtained an understanding of the process and assumptions used by management to develop the estimate of the fair value of assets acquired and consideration transferred and reassessment of contingent consideration.
	●	We obtained an understanding of management’s controls and tested the operating effectiveness of the controls.
	●	We engaged an internal valuation specialist to test certain assumptions and approaches used.
	●	We tested management’s measurement of fair value, including testing of the completeness and accuracy of source information used, mathematical accuracy of management’s calculations, and evaluated reasonableness and consistency of methodology and assumption.

/s/ Freed Maxick CPAs, P.C.

We have served as the Company's auditor since 2012.

Rochester, New York

June 6, 2023

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Description of Business: Transcat, Inc. (“Transcat,” “we,” “us,” “our” or the “Company”) is a leading provider of accredited calibration services, enterprise asset management services, and value-added 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 pharmaceutical, biotechnology, medical device and other FDA-regulated businesses. Additional industries served include industrial manufacturing; energy and utilities, including oil and gas; chemical manufacturing; FAA-regulated businesses, including aerospace and defense and other industries that require accuracy in their processes, confirmation of the capabilities of their equipment, and for which the risk of failure is very costly.

Principles of Consolidation: The consolidated financial statements of Transcat include the accounts of Transcat and the Company’s wholly-owned subsidiaries, Transcat Canada, Inc., WTT Real Estate Acquisition, LLC, Cal OpEx Limited (d/b/a Transcat Ireland), Cal OpEx Inc. (d/b/a NEXA EAM) and Tangent Labs LLC. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates: The preparation of Transcat’s Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States (“GAAP”) requires that the Company make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are used for, but not limited to, allowance for doubtful accounts and returns, inventory reserves, estimated levels of achievement for performance-based restricted stock units, fair value of stock options, depreciable lives of fixed assets, estimated lives of major catalogs and intangible assets, fair value of the goodwill reporting units, and the valuation of assets acquired, liabilities assumed and consideration transferred in business acquisitions. Future events and their effects cannot be predicted with certainty; accordingly, accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of the Consolidated Financial Statements may change as new events occur, as more experience is acquired, as additional information is obtained and as the operating environment changes. Actual results could differ from those estimates. Such changes and refinements in estimation methodologies are reflected in reported results of operations in the period in which the changes are made and, if material, their effects are disclosed in the Notes to the Consolidated Financial Statements.

Fiscal Year: Transcat operates on a 52/53-week fiscal year, ending the last Saturday in March. In a 52-week fiscal year, each of the four quarters is a 13-week period. In a 53-week fiscal year, the last quarter is a 14-week period. The fiscal years ended March 25, 2023 ("fiscal year 2023"), March 26, 2022 ("fiscal year 2022") and March 27, 2021 ("fiscal year 2021") all consisted of 52 weeks.

Accounts Receivable: Accounts receivable represent amounts due from customers in the ordinary course of business. These amounts are recorded net of the allowance for doubtful accounts and returns in the Consolidated Balance Sheets. The allowance for doubtful accounts is based upon the expected collectability of accounts receivable. The Company applies a specific formula to its accounts receivable aging, which may be adjusted on a specific account basis where the formula may not appropriately reserve for loss exposure. After all attempts to collect a receivable have failed, the receivable is written-off against the allowance for doubtful accounts. The returns reserve is calculated based upon the historical rate of returns applied to revenues over a specific timeframe. The returns reserve will increase or decrease as a result of changes in the level of revenue and/or the historical rate of returns.

Inventory: Inventory consists of products purchased for resale and is valued at the lower of average cost or net realizable value. Costs are determined using the average cost method of inventory valuation. The Company performs physical inventory counts and cycle counts on inventory throughout the year and adjusts the recorded balance to reflect the results. Inventory is reduced by a reserve for items not saleable at or above cost by applying a specific loss factor, based on historical experience, to specific categories of inventory. The Company evaluates the adequacy of the reserve on a quarterly basis. The Company had reserves for inventory losses totaling $0.3 million and $0.5 million at March 25, 2023 and March 26, 2022, respectively.

Property and Equipment, Depreciation and Amortization: Property and equipment are stated at cost. Depreciation and amortization are computed under the straight-line method over the following estimated useful lives:

Property and equipment determined to have no value are written off at their then remaining net book value. The Company capitalizes certain costs, including internal payroll costs incurred in the procurement and development of computer software used for internal purposes. Leasehold improvements are amortized under the straight-line method over the estimated useful life or the lease term, whichever is shorter. Maintenance and repairs are expensed as incurred. See Note 2 for further information on property and equipment.

Business Acquisitions: The Company applies the acquisition method of accounting for business acquisitions. Under the acquisition method, identifiable assets acquired, liabilities assumed and consideration transferred are measured at their acquisition-date fair value. The Company uses a valuation hierarchy, as further described under Fair Value of Financial Instruments below, to determine the fair values. Historically, we have relied, in part, upon the use of reports from third-party valuation specialists to assist in the estimation of fair values. Purchase price allocations are subject to revision within the measurement period, not to exceed one year from the date of acquisition. Costs to acquire a business may include, but are not limited to, fees for accounting, legal and valuation services, and are expensed as incurred in the Consolidated Statements of Income.

Goodwill and Intangible Assets: Goodwill represents the excess of the purchase price over the fair values of the underlying net assets of an acquired business. The Company tests goodwill for impairment for each reporting unit on an annual basis during the fourth quarter of its fiscal year, or immediately if conditions indicate that such impairment could exist. The Company is permitted, but not required, to qualitatively assess indicators of a reporting unit’s fair value to determine whether it is necessary to perform the two-step goodwill impairment test. If a quantitative test is deemed necessary, a discounted cash flow analysis is prepared to estimate fair value. The Company determined that no impairment was indicated as of March 25, 2023 and March 26, 2022.

The Company estimates the fair value of its reporting units using the fair market value measurement requirement. Intangible assets are evaluated for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. A summary of changes in the Company’s goodwill and intangible assets is as follows (amounts in thousands):

The intangible assets are being amortized on an accelerated basis over their estimated useful lives of up to 15 years. Amortization expense relating to intangible assets is expected to be $3.8 million in fiscal year 2024, $3.2 million in fiscal year 2025, $2.4 million in fiscal year 2026, $1.1 million in fiscal year 2027 and $0.8 million in fiscal year 2028.

Catalog Costs: Transcat capitalizes the cost of each master catalog mailed and amortizes the cost over the respective catalog’s estimated productive life. The Company reviews response results from catalog mailings on a continuous basis, and if warranted, modifies the period over which costs are recognized. The Company amortizes the cost of each master catalog over an eighteen-month period and amortizes the cost of each catalog supplement over a three-month period. Total unamortized catalog costs, included as a component of prepaid expenses and other current assets on the Consolidated Balance Sheets, were $0.1 million as of both March 25, 2023 and March 26, 2022.

Deferred Taxes: The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the consolidated financial statement carrying amounts and the tax bases of its assets and liabilities. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in income tax rates is recognized in the Consolidated Statements of Income in the period that includes the enactment date. The Company establishes valuation allowances if it believes that it is more-likely-than-not that some or all of its deferred tax assets will not be realized. See Note 4 for further discussion on income taxes.

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 on a portion of the debt with the balance bearing an interest rate approximating current market rates, 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 each of March 25, 2023 and March 26, 2022, investment assets totaled $0.2 million and are included as a component of other assets (non-current) on the Consolidated Balance Sheets.

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 for awards expected to vest. Excess tax benefits for share-based award activity are reflected in the Consolidated Statements of Income as a component of the provision for income taxes. 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 fiscal years 2023, 2022 and 2021, the Company recorded non-cash stock-based compensation cost in the amount of $3.4 million, $2.3 million and $1.5 million, respectively, in the Consolidated Statements of Income.

Revenue Recognition: Distribution sales are recorded when an order’s title and risk of loss transfers to the customer, which is generally upon shipment. The Company recognizes the majority of its Service revenue based upon when the calibration or other activity is performed and then shipped and/or delivered to the customer. The majority of the Company’s revenue generating activities have a single performance obligation and are recognized at the point in time when control transfers and/or our obligation has been fulfilled. Some Service revenue is generated from managing customers’ calibration programs in which the Company recognizes revenue over time using the output method-time elapsed as this portrays the transfer of control to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for product shipped or services performed. Sales taxes and other taxes billed and collected from customers are excluded from revenue. The Company generally invoices its customers for freight, shipping, and handling charges. Freight billed to customers is included in revenue. Shipping and handling is not included in revenue. Provisions for customer returns are provided for in the period the related revenue is recorded based upon historical data.

Under Topic 606 “Revenue from Contracts with Customers”, we use judgments that could potentially impact both the timing of our satisfaction of performance obligations and our determination of transaction prices used in determining revenue recognized. Such judgments include considerations in determining our transaction prices and when our performance obligations are satisfied for our standard product sales that include general payment terms that are between net 30 and 90 days.

Revenue recognized from prior period performance obligations for fiscal year 2023 was immaterial. As of March 25, 2023, the Company had no unsatisfied performance obligations for contracts with an original expected duration of greater than one year. Pursuant to Topic 606, the Company applied the practical expedient with respect to disclosure of the deferral and future expected timing of revenue recognition for transaction price allocated to remaining performance obligations. Deferred revenue, unbilled revenue and deferred contract costs recorded on our Consolidated Balance Sheets as of March 25, 2023 and March 26, 2022 were immaterial. See Note 7 for disaggregated revenue information.

Vendor Rebates: Vendor rebates are generally based on specified cumulative levels of purchases and/or incremental distribution sales and are recorded as a reduction of cost of distribution sales. Purchase rebates are calculated and recorded quarterly based upon the volume of purchases with specific vendors during the quarter. Point of sale rebate programs that are based on year-over-year sales performance on a calendar year basis are recorded as earned, on a quarterly basis, based upon the expected level of annual achievement. Point of sale rebate programs that are based on year-over-year sales performance on a quarterly basis are recorded as earned in the respective quarter. The Company recorded vendor rebates of $0.6 million, $1.0 million and $0.7 million in fiscal years 2023, 2022 and 2021, respectively, as a reduction of cost of distribution sales.

Cooperative Advertising Income: The Company participates in co-op advertising programs with certain of its vendors. The Company records cash consideration received from these vendors for advertising as a reduction of cost of distribution sales. The Company recorded consideration in the amount of $1.0 million, $0.8 million and $0.6 million in fiscal years 2023, 2022 and 2021, respectively, in connection with these programs.

Advertising Costs: Advertising costs, other than catalog costs, are expensed as they are incurred and are included in Selling, Marketing and Warehouse Expenses in the Consolidated Statements of Income. Advertising costs were approximately $1.2 million, $1.1 million and $0.9 million in fiscal years 2023, 2022 and 2021, respectively.

Shipping and Handling Costs: Freight expense and direct shipping costs are included in the cost of revenue. These costs totaled approximately $2.9 million, $2.7 million and $2.4 million in fiscal years 2023, 2022 and 2021, respectively. Direct handling costs, the majority of which represent direct compensation of employees who pick, pack, and prepare merchandise for shipment to customers, are reflected in selling, marketing and warehouse expenses. Direct handling costs were approximately $0.7 million, $0.8 million and $0.8 million in fiscal years 2023, 2022 and 2021, respectively.

Foreign Currency Translation and Transactions: The accounts of Cal OpEx Limited (d/b/a Transcat Ireland), an Irish company, and Transcat Canada Inc., both of which are wholly-owned subsidiaries of the Company, are maintained in the local currencies, the Euro and the Canadian dollar, respectively, 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 Cal OpEx Limited’s and Transcat Canada Inc.’s financial statements into U.S. dollars are recorded directly to the accumulated other comprehensive loss component of shareholders’ equity.

Transcat records foreign currency gains and losses on business transactions denominated in foreign currency. The net foreign currency loss was $0.7 million in fiscal year 2023, a gain of $0.1 million in fiscal year 2022 and a loss of less than $0.1 million in fiscal year 2021. The Company continually utilizes short-term foreign exchange forward contracts to reduce the risk that its future earnings denominated in Canadian dollars would 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, a loss of less than $0.1 million and a loss of less than $0.1 million in fiscal year 2023, 2022 and 2021, respectively, was recognized as a component of Interest and Other Expenses, net 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 March 25, 2023, the Company had a foreign exchange contract, which matured in April 2022, outstanding in the notional amount of $2.5 million. This contract was subsequently renewed and remains in place. The Company does not use hedging arrangements for speculative purposes.

Other Comprehensive Income: Other comprehensive income is composed of currency translation adjustments, unrecognized prior service costs from post retirement plan, net of tax, and unrealized gains or losses on other assets, net of tax.

The Company determines the expense and obligations for its post-retirement plans using assumptions related to discount rates, expected long-term rates of return on invested plan assets, and certain other factors. The Company determines the fair value of plan assets and benefit obligations as of the end of each fiscal year. The unrecognized portion of the gain or loss on plan assets is included in the consolidated balance sheets as a component of accumulated other comprehensive loss in shareholders’ equity and is recognized into the plans’ expense over time. See Note 5 for further discussion on the Company’s post retirement plan.

The Company has a non-qualified deferred compensation plan for the benefit of certain management employees and non-employee directors. Investment assets, which fund the Company’s non-qualified deferred compensation plan, consist of mutual funds. The unrecognized portion of the gain or loss on plan assets is included in the Consolidated Statements of Income.

At March 25, 2023, accumulated other comprehensive loss consisted of cumulative currency translation losses of $1.1 million, unrecognized prior service costs, net of tax, of $0.1 million and an unrealized gain on other assets, net of tax, of less than $0.1 million.

At March 26, 2022, accumulated other comprehensive loss consisted of cumulative currency translation gains of $0.1 million, unrecognized prior service costs, net of tax, of $0.1 million and an unrealized gain on other assets, net of tax, of less than $0.1 million.

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, proceeds received from the exercise of options and unvested restricted stock units 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 each of fiscal years 2023, 2022 and 2021, the net additional common stock equivalents had a $(0.02) per share effect on the calculation of dilutive earnings per share. The average shares outstanding used to compute basic and diluted earnings per share are as follows (amounts in thousands):

Shareholders’ Equity: During fiscal years 2023, 2022 and 2021, the Company repurchased and subsequently retired less than 0.1 million shares, 0.1 million shares and 0.1 million shares, respectively, of its common stock. The Company allows its employees the option of satisfying the employee tax withholding obligations with either cash or a net share repurchase. The repurchase of shares was for the net awarding of certain share awards to cover employee tax-withholding obligations for share award and stock option activity, totaling $0.4 million in fiscal year 2023, $6.7 million in fiscal year 2022 and $3.1 million in fiscal year 2021. There were no stock option redemptions during fiscal year 2023, fiscal year 2022 or fiscal year 2021.

In June 2016, the Financial Accounting Standard Board (“FASB”) issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The ASU replaces the “incurred loss” model with an “expected credit loss” model that requires entities to estimate an expected lifetime credit loss on financial assets, including trade accounts receivable. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Allowance for doubtful accounts is the most significant item for the Company under this ASU. As credit losses from the Company’s trade receivables have not historically been significant, the Company anticipates that the adoption of the ASU will not have a material impact on its consolidated financial statements.

Reclassification of Amounts: Certain reclassifications of financial information for prior fiscal years have been made to conform to the presentation for the current fiscal year.

Total depreciation and amortization expense relating to property and equipment amounted to $6.5 million, $5.7 million and $5.0 million in fiscal years 2023, 2022 and 2021, respectively.

On July 7, 2021, we entered into the Second Amended and Restated Credit Facility Agreement (the “2021 Credit Agreement”) with Manufacturers and Traders Trust Company (“M&T”), that amended and restated in its entirety the Company’s Amended and Restated Credit Facility Agreement dated as of October 30, 2017, as amended by Amended and Restated Credit Facility Agreement Amendment 1 dated December 10, 2018 and Amended and Restated Credit Facility Agreement Amendment 2 (“Amendment Two”) dated May 18, 2020 (as amended, the “Prior Credit Agreement”).

The 2021 Credit Agreement increased the revolving credit commitment (the “Revolving Credit Commitment”) from $40.0 million to $80.0 million, with a letter of credit subfacility increased from $2.0 million to $10.0 million, and extended the term of the Revolving Credit Commitment to June 2026. The 2021 Credit Agreement amended the definition of Applicable Margin (formerly Applicable Rate under the Prior Credit Agreement), which is based upon the Company’s then current leverage ratio and is used to determine interest charges on outstanding and unused borrowings under the revolving credit facility; the amendments reduced the Applicable Margins payable at the two highest leverage ratio levels. The 2021 Credit Agreement also amended the definition of Permitted Acquisitions, that is, acquisitions which are permitted under, and may be financed with proceeds of, the revolving credit facility, including increasing the aggregate purchase price for acquisitions consummated in any fiscal year from $1.0 million to $65.0 million during fiscal year 2022 and $50.0 million during fiscal year 2023 and any subsequent fiscal year, and adding an aggregate purchase price of $40.0 million for acquisitions consummated at any time during the term of the 2021 Credit Agreement related to businesses with a principal place of business located in the United Kingdom or the European Union.

In addition, the 2021 Credit Agreement provides that, assuming no event of default, restricted payments up to $25.0 million (increased from $10.0 million in the Prior Credit Agreement) in the aggregate and $10.0 million (increased from $3.0 million in the Prior Credit Agreement) in any single fiscal year may be used by us to repurchase our shares and pay dividends. The 2021 Credit Agreement modified the leverage ratio and fixed charge coverage ratio covenants with which we are required to comply. The 2021 Credit Agreement also reduced the London Interbank Offered Rate (“LIBOR”) floor from 1.0% to 0.25% and included a mechanism for adoption of a different benchmark rate upon the discontinuation of LIBOR. The 2021 Credit Agreement also reduced the fixed interest rate on our term loan in the amount of $15.0 million (the “2018 Term Loan”) from 4.15% to 3.90%.

The 2021 Credit Agreement superseded in its entirety, the Prior Credit Agreement. Amendment Two to the Prior Credit Agreement had previously extended the term of the revolving credit facility to October 20, 2022and increased the revolving credit commitment to $40.0 million.

Amendment Two had modified the definition of the applicable rate used to determine interest charges on outstanding and unused borrowings under the revolving credit facility and it amended the definition of permitted acquisitions to amend borrowings available under the revolving credit facility for acquisitions. In addition, Amendment Two had amended the definition of restricted payments to exclude amounts up to $2.5 million during each fiscal year used to pay certain employee tax obligations associated with share-based payment and stock option activity, and modified certain restrictions to the Company’s ability to repurchase its shares and pay dividends. Amendment Two also had modified the leverage ratio and fixed charge coverage ratio covenants with which the Company was required to comply and limited capital expenditures to $5.5 million for fiscal year 2021. Amendment Two also had established a LIBOR floor of 1.0% and included a mechanism for adoption of a different benchmark rate in the event LIBOR was discontinued.

As of March 25, 2023, $80.0 million was available under the revolving credit facility, of which $42.7 million was outstanding and included in long-term debt on the Consolidated Balance Sheets. During fiscal year 2023, $9.1 million was used for four business acquisitions.

As of March 25, 2023, $6.4 million was outstanding on the 2018 Term Loan, of which $2.2 million was included in current liabilities on the Consolidated Balance Sheets with the remainder included in long-term debt. The 2018 Term Loan requires total repayments (principal plus interest) of $0.2 million per month through December 2025.

Interest and Other Costs: Interest on outstanding borrowings under the revolving credit facility accrue, at Transcat’s election, at either the variable one-month LIBOR or a fixed rate for a designated period at the LIBOR corresponding to such period (subject to a 1.0% floor during the first quarter of fiscal year 2022 and a 0.25% floor for subsequent periods), in each case, plus a margin. Interest on outstanding borrowings under the 2018 Term Loan accrued at a fixed rate of 4.15% over the term of the loan during the first quarter of fiscal year 2022 and accrued or will accrue at a fixed rate of 3.90% over the term of the loan for subsequent periods. Unused fees accrue based on the average daily amount of unused credit available on the revolving credit facility. Interest rate margins and unused fees are determined on a quarterly basis based upon the Company’s calculated leverage ratio. The Company’s interest rate for the revolving credit facility for fiscal year 2023 ranged from 1.6% to 6.5%.

Covenants: The 2021 Credit Agreement has certain covenants with which the Company must comply, including a fixed charge ratio covenant and a leverage ratio covenant. The Company was in compliance with all loan covenants and requirements during fiscal years 2023 and 2022. Our leverage ratio, as defined in the 2021 Credit Agreement, was 1.60 at March 25, 2023, compared with 1.74 at March 26, 2022.

Pursuant to the Prior Credit Agreement, we were required to comply with a fixed charge ratio covenant and a leverage ratio covenant, which were modified by the 2021 Credit Agreement. The allowable leverage ratio under the Prior Credit Agreement for the first quarter of fiscal year 2022 was a maximum multiple of 4.0 of total debt outstanding compared to EBITDA and non-cash stock-based compensation expense for the preceding four consecutive fiscal quarters. The Prior Credit Agreement also had provided that the trailing twelve-month pro forma EBITDA of an acquired business was included in the allowable leverage calculation. After the first quarter of fiscal year 2022, pursuant to the 2021 Credit Agreement, the allowable leverage ratio is a maximum multiple of 3.0.

Other Terms: The Company has pledged all of its U.S. tangible and intangible personal property, the equity interests of its U.S.-based subsidiaries, and a majority of the common stock of Transcat Canada Inc. as collateral security for the loans made under the revolving credit facility.

Transcat’s income before income taxes on the Consolidated Statements of Income is as follows (amounts in thousands):

The provision for income taxes for fiscal years 2023, 2022 and 2021 is as follows:

The Company files income tax returns in the U.S. federal jurisdiction, various states, Canada and Ireland. The Company is no longer subject to examination by U.S. federal income tax authorities for fiscal years 2019 and prior, by state tax authorities for fiscal years 2017 and prior, by Canadian tax authorities for fiscal years 2017 and prior, and by Ireland tax authorities for calendar years 2018 and prior. There are no income tax years currently under examination by the Internal Revenue Service, Canadian and Irish tax authorities. One U.S. state has selected Transcat for analysis, the results of this analysis will determine if further action is required. The Company's foreign subsidiary undistributed earnings are considered to be permanently reinvested.

During fiscal years 2023, 2022 and 2021, there were no uncertain tax positions. No interest or penalties related to uncertain tax positions were recognized in fiscal years 2023, 2022 and 2021 or were accrued at March 25, 2023 and March 26, 2022.

The Company’s effective tax rate for fiscal years 2023, 2022 and 2021 was 20.8%, 13.7% and 21.9%, respectively. The tax rate is affected by recurring items, such as state income taxes and tax credits, which the Company expects to be fairly consistent in the near term. It is also affected by discrete items that may occur in any given year but are not consistent from year to year. The discrete benefits related to share-based compensation awards in each of fiscal years 2023, 2022 and 2021 were $0.4 million, $1.4 million and $0.3 million, respectively.

The Company expects to receive certain federal, state and Canadian tax credits in future years. The Company also expects to receive discrete tax benefits related to share-based compensation awards in fiscal year 2024. As such, it expects its effective tax rate in fiscal year 2024 to be between 21.0% and 23.0%.

Defined Contribution Plan. All of Transcat’s U.S. based employees are eligible to participate in a defined contribution plan, the Long-Term Savings and Deferred Profit Sharing Plan (the “Plan”), provided they meet certain qualifications. In fiscal years 2023 and 2022, the Company matched 50% of the first 6% of pay that eligible employees contribute to the Plan. In response to the COVID-19 pandemic, the Company suspended the employer match to the Plan for the firstsix months of fiscal year 2021. In the secondsix months of fiscal year 2021, the Company matched 50% of the first 6% of pay that eligible employees contribute to the Plan.

In the long-term savings portion of the Plan (the “401K Plan”), plan participants are entitled to a distribution of their vested account balance upon termination of employment or retirement. Plan participants are fully vested in their contributions while Company contributions are fully vested after three years of service. The Company’s matching contributions to the 401K Plan were approximately $1.2 million, $1.1 million and $0.4 million in fiscal years 2023, 2022 and 2021, respectively.

In the deferred profit sharing portion of the Plan, Company contributions are made at the discretion of the Company’s Board of Directors. The Company made no profit sharing contributions in fiscal years 2023, 2022 and 2021.

Employee Stock Purchase Plan. The Company has an Employee Stock Purchase Plan (the “ESPP”) that allows for eligible employees as defined in the ESPP to purchase common shares of the Company through payroll deductions at a price that is 85% of the closing market price on the second last business day of each calendar month (the “Investment Date”). 650,000 shares can be purchased under the ESPP. The difference between the closing market price on the Investment Date and the price paid by employees is recorded as a general and administrative expense in the accompanying Consolidated Statements of Income. The expense related to the ESPP was less than $0.1 million in each of fiscal years 2023, 2022 and 2021.

Non-Qualified Deferred Compensation Plan. The Company has available a non-qualified deferred compensation plan (the “NQDC Plan”) for directors and officers. Participants are fully vested in their contributions. At its discretion, the Company may elect to match employee contributions, subject to legal limitations in conjunction with the 401K Plan, which fully vest after three years of service. During fiscal years 2023, 2022 and 2021, the Company did not match any employee contributions. Participant accounts are adjusted to reflect performance, whether positive or negative, of selected investment options chosen by each participant during the deferral period. In the event of bankruptcy, the assets of the NQDC Plan are available to satisfy the claims of the Company’s general creditors. The liability for compensation deferred under the NQDC Plan was $0.2 million as of both March 25, 2023 and March 26, 2022, and is included as a component of other liabilities (non-current) on the Consolidated Balance Sheets.

Post-retirement Health Care Plans. The Company has a defined benefit post-retirement health care plan which provides long-term care insurance benefits, medical and dental insurance benefits and medical premium reimbursement benefits to eligible retired corporate officers and their eligible spouses (the “Officer Plan”).

The change in the post-retirement benefit obligation is as follows (amounts in thousands):

The accumulated post-retirement benefit obligation is included as a component of other liabilities (non-current) in the Consolidated Balance Sheets. The components of net periodic post-retirement benefit cost and other amounts recognized in other comprehensive income are as follows (amounts in thousands):

The prior service cost is amortized over the average remaining life expectancy of active participants in the Officer Plan. The estimated prior service cost that will be amortized from accumulated other comprehensive income into net periodic post-retirement benefit cost during fiscal year 2024 is less than $0.1 million.

The post-retirement benefit obligation was computed by an independent third-party actuary. Assumptions used to determine the post-retirement benefit obligation and the net periodic postretirement benefit cost were as follows:

Benefit payments are funded by the Company as needed. Payments toward the cost of a retiree’s medical and dental coverage are initially determined as a percentage of a base coverage plan in the year of retirement and are limited to increase at a rate of no more than 50% of the annual increase in medical and dental costs, as defined in the plan document. The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows (amounts in thousands):

Increasing the assumed health care cost trend rate by one percentage point would increase the accumulated post-retirement benefit obligation and the annual net periodic post-retirement benefit cost by $0.1 million. A one percentage point decrease in the healthcare cost trend would decrease the accumulated post-retirement benefit obligation and the annual net periodic post-retirement benefit cost by $0.1 million.

In September 2021, the Transcat, Inc. 2021 Stock Incentive Plan (the “2021 Plan”) was approved by shareholders and became effective. The 2021 Plan replaced the Transcat, Inc. 2003 Incentive Plan (the “2003 Plan”). Shares available for grant under the 2021 Plan include any shares remaining available for issuance under the 2003 Plan and any shares that are subject to outstanding awards under the 2003 Plan that are subsequently canceled, expired, forfeited, or otherwise not issued or are settled in cash. The 2021 Plan provides for, among other awards, grants of restricted stock units and stock options to directors, officers and key employees at the fair market value at the date of grant. At March 25, 2023, 0.7 million shares of common stock were available for future grant under the 2021 Plan.

The Company receives an excess tax benefit related to restricted stock vesting and stock options exercised and redeemed. The discrete benefits related to share-based compensation and stock option activity in fiscal years 2023, 2022 and 2021 were $0.4 million, $1.4 million and $0.3 million, respectively.

Restricted Stock Units: The Company grants time-based and performance-based restricted stock units as a component of executive and key employee compensation. Expense for restricted stock unit grants is recognized on a straight-line basis for the service period of the stock award based upon fair value of the award on the date of grant. The fair value of the restricted stock unit grants is the quoted market price for the Company’s common stock on the date of grant. These restricted stock units are either time vested, or vest following the third fiscal year from the date of grant subject to cumulative diluted earnings per share targets over the eligible period.

The Company’s non-employee directors receive an annual grant of restricted stock units valued at $50,000 that vest after one year. The fiscal year 2023, fiscal year 2022 and fiscal year 2021 restricted stock unit grants to non-employee directors were made in September 2022, September 2021 and September 2020, respectively.

Compensation cost ultimately recognized for performance-based restricted stock units will equal the grant date fair market value of the unit that coincides with the actual outcome of the performance conditions. On an interim basis, the Company records compensation cost based on the estimated level of achievement of the performance conditions. The expense relating to the time vested restricted stock units is recognized on a straight-line basis over the requisite service period for the entire award.

During fiscal year 2023, 19,000 shares of time-vested restricted stock units were granted and 11,000 shares of performance-based restricted stock units were granted. During fiscal year 2022, 30,000 shares of time-vested restricted stock units were granted and 15,000 shares of performance-based restricted stock units were granted. During fiscal year 2021, 80,000 shares of time-vested restricted stock units were granted.

The following table summarizes the restricted stock units vested and shares issued during fiscal years 2023, 2022 and 2021 (amounts in thousands, except per unit data):

The following table summarizes the non-vested restricted stock units outstanding as of March 25, 2023 (amounts in thousands, except per unit data):

Total expense relating to restricted stock units, based on grant date fair value and the achievement criteria, was $2.0 million, $1.6 million and $1.4 million in fiscal years 2023, 2022 and 2021, respectively. Unearned compensation totaled $1.9 million as of March 25, 2023 which is expected to be realized over a period of three years.

Stock Options: The Company grants stock options to employees and directors with an exercise price equal to the quoted market price of the Company’s stock at the date of the grant. The fair value of stock options is estimated using the Black-Scholes option pricing formula that requires assumptions for expected volatility, expected dividends, the risk-free interest rate and the expected term of the option. Expense for stock options is recognized on a straight-lined basis over the requisite service period for each award. Options vest either immediately or over a period of up to five years using a straight-line basis and expire either five years or ten years from the date of grant.

We calculate the fair value of the stock options granted using the Black-Scholes model. The following weighted-average assumptions were used to value options granted during fiscal years 2023, 2022 and 2021:

We calculate expected volatility for stock options by taking an average of historical volatility over the expected term. The computation of expected term was determined based on safe harbor rules, giving consideration to the contractual terms of the stock-based awards and vesting schedules. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield in effect at the time of grant. We assume no expected dividends. Under FASB ASC Topic 718, “Compensation – Stock Compensation”, the Company has elected to account for forfeitures as they occur.

During fiscal year 2023, the Company granted options for 46,000 shares of common stock in the aggregate to Company employees that vest over three years and an option for 10,000 shares of common stock to a new member of the Board of Directors that vests over five years.

During fiscal year 2022, the Company granted an option for 10,000 shares of common stock each to two new members (20,000 shares in the aggregate) of the Board of Directors that vest over five years, an option for 2,000 shares of common stock each to five employees (10,000 shares in the aggregate) that vests over three years, an option for 90,000 shares of common stock in the aggregate to employees during an acquisition that vests over five years and an option for 6,000 shares of common stock to a Company employee that vests over three years.

During fiscal year 2021, the Company granted an option for 5,000 shares of common stock to a Company employee that vests over three years and an option for 15,000 shares of common stock to an employee that immediately vested.

The expense related to all stock option awards was $1.4 million in fiscal year 2023, $0.7 million in fiscal year 2022 and $0.1 million in fiscal year 2021.

The following table summarizes the Company’s options for fiscal years 2023, 2022 and 2021 (amounts in thousands, except per option data):

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of fiscal year 2023 and the exercise price, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all holders exercised their options on March 25, 2023. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s common stock.

Total unrecognized compensation cost related to non-vested stock options as of March 25, 2023 was $1.9 million, which is expected to be recognized over a period of three years. The aggregate intrinsic value of stock options exercised in fiscal years 2023, 2022 and 2021 was $0.3 million, $5.3 million and $1.6 million, respectively. Cash received from the exercise of options in fiscal years 2023, 2022 and 2021 was $0.1 million, $1.0 million and $0.8 million, respectively.

The basis for determining our operating segments is the manner in which financial information is used in monitoring our operations. Transcat has two reportable segments: Service and Distribution. Through our Service segment, we offer calibration, repair, inspection, analytical qualifications, preventative maintenance, consulting and other related services. Through our Distribution segment, we sell and rent national and proprietary brand instruments to customers globally. The Company has no inter-segment sales. We believe that reporting performance at the operating income level is the best indicator of segment performance. The following table presents segment and geographic data for fiscal years 2023, 2022 and 2021 (dollars in thousands):

The Company determines if an arrangement is a lease at inception. Our lease agreements generally contain lease and non-lease components. Historically, non-lease components such as utilities have been immaterial. Payments under our lease arrangements are primarily fixed. Lease assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value of the future lease payments is our incremental borrowing rate, because the interest rate implicit in our leases is not readily determinable. Our incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located. Our lease terms include periods under options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

Transcat leases facilities, equipment, and vehicles under various non-cancelable operating leases. As of March 25, 2023, the remaining lease terms on our operating leases range from approximately one year to fifteen years, and include any renewal and/or termination options that are reasonably certain to be exercised by the Company. There is no transfer of title or option to purchase the leased assets upon expiration. The weighted average discount rate for fiscal year 2023, 2022 and 2021 was 3.90%, 4.15% and 4.15%, respectively. The weighted average remaining lease term is approximately eleven years. Short-term leases are leases having a term of 12 months or less. The Company recognizes short-term leases on an as incurred basis and does not record a related lease asset or liability for such leases. Short-term lease expense was immaterial in fiscal years 2023, 2022. and 2021.

The components of lease expense for the current and prior-year comparative periods were as follows (dollars in thousands):

Total rental expense was approximately $5.3 million, $4.3 million and $3.8 million in fiscal years 2023, 2022 and 2021, respectively. The minimum future annual rental payments under the non-cancelable leases at March 25, 2023 are as follows (in millions):

Effective December 2018, the Company has term loan repayments (principal plus interest) of $0.2 million per month through December 2025. Principal payments relating to the 2018 Term Loan will be $2.2 million in fiscal year 2024, $2.3 million in fiscal year 2025 and $1.8 million in fiscal year 2026.

In connection with the acquisition of NEXA, there are potential earn-out payments of up to $7.5 million over the four-year period following the closing of the transaction based upon NEXA achieving certain annual revenue and EBITDA goals. If achieved, the earn-out payments will be made in shares of common stock unless certain criteria is met for cash payment. As of August 31, 2021 and March 26, 2022, the estimated fair value for the contingent earn-out payments was $0.2 million and included in the preliminary purchase price allocation in Note 9. During the second quarter of fiscal year 2023, the Company reduced the contingent consideration down to zero. As a result of remeasurement, the change was included in the Company’s Consolidated Statements of Income. There were no remeasurement adjustments during the second half of fiscal year 2023.

Elite: Effective February 2, 2023, Transcat acquired substantially all of the assets of Elite Calibration LLC (“Elite”), a California based provider of calibration services. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that can leverage the Company’s already existing operating infrastructure.

All the goodwill related to the Elite acquisition has been allocated to the Service segment. Amortization of goodwill related to the Elite acquisition is deductible for tax purposes.

The total purchase price for the assets of Elite was approximately $0.9 million, of which $0.8 million was paid in cash. Pursuant to the asset purchase agreement, the Company held back $0.1 million of the purchase price for certain potential post-closing adjustments. The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of Elite’s assets and liabilities acquired on February 2, 2023 (in thousands):

From the date of acquisition through the end of fiscal year 2023, Elite has contributed revenue of $0.1 million. Since this operation was integrated immediately into our existing operations, its separate operating income in undeterminable.

Complete Calibrations: Effective September 28, 2022, Transcat purchased all of the outstanding capital stock of Galium Limited (d/b/a Complete Calibrations) ("Complete Calibrations"), an Irish company. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s Service capabilities.

All the goodwill related to the Complete Calibrations acquisition has been allocated to the Service segment. Amortization of goodwill related to the Complete Calibrations acquisition is not deductible for tax purposes. The goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition.

The total purchase price paid for Complete Calibrations was approximately $1.2 million in cash. In connection with this transaction, the Company also entered into a Technology License Agreement with Calibration Robots Limited, an Irish company and related party to Complete Calibrations, for the use of their proprietary robotics in completing calibrations. The Technology License Agreement includes transactional royalties in the amount of 3 Euros (approximately $3.23) per calibration performed by technology covered under this license agreement, with a royalty term of up to ten years commencing from the earlier of (i) the date on which cumulative revenue earned from technology covered under this license agreement equals 0.75 million Euros (approximately $0.81 million), and (ii) March 28, 2024. In addition to the transactional royalties, as long as a key employee is employed by the Company, there is an annual royalty fee of 0.1 million Euros (approximately $0.11 million). For purposes of this paragraph, we used a conversion rate of 1.0762 to convert Euro to U.S. dollar as of March 25, 2023.

The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of Complete Calibrations’ assets and liabilities acquired on September 28, 2022 (in thousands):

From the date of acquisition through the end of fiscal year 2023, Complete Calibrations has contributed revenue of $0.2 million and operating loss of less than $0.1 million.

e2b: Effective September 27, 2022, Transcat acquired substantially all of the assets of e2b Calibration (“e2b”), an Ohio based provider of calibration services. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s Service capabilities.

The e2b goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. All the goodwill and intangible assets relating to the e2b acquisition has been allocated to the Service segment. Intangible assets related to the e2b acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to fifteen years and are deductible for tax purposes. Amortization of goodwill related to the e2b acquisition is deductible for tax purposes.

The total purchase price paid for the assets of e2b was approximately $3.1 million in cash. Pursuant to the asset purchase agreement, $0.9 million of the purchase price was placed in escrow for certain potential post-closing adjustments. During the third quarter of fiscal year 2023, $0.6 million of the escrow was released to the sellers. As of March 25, 2023, $0.3 million remains in escrow.

The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of e2b’s assets and liabilities acquired on September 27, 2022 (in thousands):

From the date of acquisition through the end of fiscal year 2023,e2b has contributed revenue of $1.8 million and operating income of $0.3 million, which includes the negative impact of amortization of the acquired intangible assets.

Alliance: Effective May 31, 2022, Transcat acquired substantially all of the assets of Charlton Jeffmont Inc., Raitz Inc. and Toolroom Calibration Inc. d/b/a Alliance Calibration (“Alliance”), an Ohio based provider of calibration services. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s service capabilities.

The Alliance goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. All the goodwill and intangible assets relating to the Alliance acquisition has been allocated to the Service segment. Intangible assets related to the Alliance acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to fifteen years and are deductible for tax purposes. Amortization of goodwill related to the Alliance acquisition is deductible for tax purposes.

The purchase price for Alliance was approximately $4.7 million and was paid with $4.0 million in cash and the issuance of 2,284 shares of our common stock valued at $0.1 million. Pursuant to the asset purchase agreement, the Company held back $0.5 million of the purchase price for certain potential post-closing adjustments, and the purchase price will be subject to reduction by $0.5 million if a key customer relationship is not retained.

The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of Alliance’s assets and liabilities acquired on May 31, 2022 (in thousands):

From the date of acquisition through the end of fiscal year 2023, Alliance has contributed revenue of $2.0 million and operating income of $0.3 million, which includes the negative impact of amortization of the acquired intangible assets.

Tangent: Effective December 31, 2021, Transcat purchased all the outstanding membership units of Tangent Labs, LLC, a privately held company (“Tangent”). Tangent provides in-house and on-site calibrations of precision measurement and control instrumentation to customers in the life science, aerospace and other regulated industries, and has lab locations in Indianapolis, Indiana and Huntsville, Alabama. This transaction aligned with a key component of the Company’s strategy of acquiring local capabilities in attractive geographies.

The Tangent goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. All the goodwill and intangible assets relating to the Tangent acquisition has been allocated to the Service segment. Intangible assets related to the Tangent acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to fifteen years and are deductible for tax purposes. Amortization of goodwill related to the Tangent acquisition is not deductible for tax purposes.

The purchase price for Tangent was approximately $8.9 million, all paid in cash, and is subject to certain customary holdback provisions and a portion of which was placed in escrow to secure the sellers’ obligations in the event that a key employee terminates employment with Tangent on or before the first anniversary of the closing of the transaction. $7.9 million was paid in cash and $1.0 million of the purchase price has been put into escrow for indemnification claims, if any.

During the second quarter of fiscal year 2023, the key employee terminated their employment with the Company. As a result, the Company took $0.2 million out of the escrow account and it was recorded as a gain in the Company's Consolidated Statement of Income. During the second quarter of fiscal year 2023, an amendment to the Membership Unit Purchase Agreement was entered into which allows the sellers to earn the remaining $0.3 million in the escrow account based on revenue and gross profit during the period of October 2022 to September 2023. During the fourth quarter of fiscal year 2023, the Company determined that they would not hit the gross profit target and recorded a gain of $0.2 million in the Company’s Consolidated Statement of Income

During the second quarter of fiscal year 2023, a measurement period adjustment was recorded to recognize the fair value of Property and Equipment acquired, with a corresponding reduction to Goodwill. There was no remeasurement period adjustment in the second half of fiscal year 2023. The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of Tangent’s assets and liabilities acquired on December 31, 2021 (in thousands):

During fiscal year 2023, Tangent contributed revenue of $2.4 million and operating income of $0.3 million, which includes the negative impact of amortization of the acquired intangible assets.

NEXA: Effective August 31, 2021, Transcat purchased all of the outstanding capital stock of Cal OpEx Limited (d/b/a Transcat Ireland), a private Irish company, which owns all of the issued and outstanding capital stock of its U.S.-based subsidiary, Cal OpEx Inc. (d/b/a NEXA EAM), a Delaware corporation (collectively, “NEXA”). NEXA provides calibration optimization and other technical solutions to improve asset and reliability management programs to pharmaceutical, biotechnology, and medical device companies worldwide. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s Service capabilities.

The NEXA goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. All of the goodwill and intangible assets relating to the NEXA acquisition has been allocated to the Service segment. Intangible assets related to the NEXA acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to five years and are deductible for tax purposes. Amortization of goodwill related to the NEXA acquisition is not deductible for tax purposes.

The purchase price for NEXA was approximately $26.2 million and was paid with $23.9 million in cash and the issuance of 34,943 shares of our common stock valued at $2.4 million. Additionally, there are potential earn-out payments of up to $7.5 million over the four-year period following the closing of the transaction based upon NEXA achieving certain annual revenue and EBITDA goals. If achieved, the earn-out payments will also be made in shares of common stock unless certain criteria is met for cash payment. As of August 31, 2021 and March 26, 2022, the estimated fair value for the contingent earn-out payments, classified as Level 3 in the fair value hierarchy, was $0.2 million and included in the purchase price allocation below. This amount was calculated using a Geometric Brownian motion distribution that was then used in a Monte Carlo simulation model. Assumptions used in the Monte Carlo simulation model included: 1) weighted-average cost of capital of 6.60%, 2) risk-free interest rate of 0.58%, 3) asset volatility of 20.00%, and 4) forecasted revenue and EBITDA. This contingent consideration is remeasured quarterly. If, as a result of remeasurement, the value of the contingent consideration changes, any charges or income will be included in the Company’s Consolidated Statements of Income.

During the second quarter of fiscal year 2023, the Company reduced the contingent consideration down to zero. As a result of remeasurement, the change was included in the Company’s Consolidated Statements of Income. There were no remeasurement adjustments during the second half of fiscal year 2023. During the calendar year 2022 (the first measurement period), NEXA did not achieve the EBITDA goals in the agreement and no earn-out payments were made. $0.1 million of the purchase price has been put into escrow for indemnification claims, if any.

The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of NEXA’s assets and liabilities acquired on August 31, 2021 (in thousands):

During fiscal year 2023, NEXA contributed revenue of $13.2 million and operating income of less than $0.1 million, which includes the negative impact of amortization of the acquired intangible assets.

Upstate Metrology: Effective April 29, 2021, Transcat acquired substantially all of the assets of Upstate Metrology Inc. (“Upstate Metrology”), a New York based provider of calibration services. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that can leverage the Company’s already existing operating infrastructure.

All the goodwill related to the Upstate Metrology acquisition has been allocated to the Service segment. Amortization of goodwill related to the Upstate Metrology acquisition is deductible for tax purposes.

The total purchase price for the assets of Upstate Metrology was approximately $0.9 million. The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of Upstate Metrology’s assets and liabilities acquired on April 29, 2021 (in thousands):

Since this operation was integrated immediately into our existing operations, its separate contributed revenue and operating income is undeterminable.

BioTek: Effective December 16, 2020, Transcat acquired substantially all of the assets of BioTek Services, Inc. (“BioTek”), a Virginia based provider of pipette calibration services. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s Service capabilities. BioTek’s focus on pipettes complements the current offerings Transcat provides to the life science sector.

All of the goodwill and intangible assets relating to the BioTek acquisition has been allocated to the Service segment. Intangible assets related to the BioTek acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to 10 years and are deductible for tax purposes. Amortization of goodwill related to the BioTek acquisition is deductible for tax purposes.

The total purchase price for the assets of BioTek was approximately $3.5 million. $0.4 million of the purchase price had been put into escrow for indemnification claims, if any. This escrow was released during the fourth quarter of fiscal year 2022. The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of BioTek’s assets and liabilities acquired during the period presented (in thousands):

The results of acquired businesses are included in Transcat’s consolidated operating results as of the dates the businesses were acquired. The following unaudited pro forma information presents the Company’s results of operations as if the acquisitions of Elite, Complete Calibration, e2b, Alliance, Tangent, NEXA, Upstate Metrology and BioTek had occurred at the beginning of fiscal year 2021. The pro forma results do not purport to represent what the Company’s results of operations actually would have been if the transactions had occurred at the beginning of the period presented or what the Company’s operating results will be in future periods.

Certain of the Company’s acquisition agreements include provisions for contingent consideration and other holdback amounts. The Company accrues for contingent consideration and holdback provisions based on their estimated fair value at the date of acquisition. As of March 25, 2023, no contingent consideration and $0.6 million of other holdback amounts were unpaid and reflected in current liabilities on the Consolidated Balance Sheets. As of March 26, 2022, $0.2 million of contingent consideration and $0.1 million of other holdback amounts were unpaid and reflected in current liabilities on the Consolidated Balance Sheets. During fiscal years 2023,2022 and 2021, no contingent consideration or other holdback amounts were paid.

During fiscal years 2023,2022 and 2021, acquisition costs of $0.2 million, $0.9 million and less than $0.1 million were recorded as incurred as general and administrative expenses in the Consolidated Statements of Income.

Effective March 27, 2023, Transcat purchased all of the outstanding capital stock of TIC-MS, Inc. (“TIC-MS”), a Missouri based provider of calibration services. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s Service capabilities. The total purchase price paid for TIC-MS was approximately $9.8 million, of which $2.9 million was paid in cash, including $0.5 million placed in escrow for certain post-closing adjustments and indemnification claims, if any, and the issuance of 77,387 shares of our common stock valued at approximately $6.8 million. Pursuant to the purchase agreement, the purchase price will be subject to reduction by up to $0.5 million if a key customer relationship is not retained.

The purchase price allocation has not been finalized, due to the timing of the acquisition and the filing date of this Annual Report on Form 10-K. Therefore, the allocation of the purchase price to the assets acquired and liabilities assumed, including values to be recognized for goodwill and other intangible assets, will be disclosed in the Quarterly Report on Form 10-Q for the fiscal quarter ending June 24, 2023. The pro forma results of operations from the TIC-MS acquisition will be disclosed in the Quarterly Report on Form 10-Q for the fiscal quarter ending June 24, 2023. The goodwill related to TIC-MS is not expected to be deductible for income tax purposes. All of the goodwill and intangible assets relating to the TIC-MS acquisition will be allocated to the Service segment.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

(a) Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures. Our principal executive officer and our principal financial officer evaluated our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934, as amended, (“Exchange Act”) Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our principal executive officer and principal financial officer to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of such date.

(b) Management’s Annual Report on Internal Control over Financial Reporting. Management's report on internal control over financial reporting and the attestation report of our independent registered public accounting firm ~~regarding internal control over financial reporting. Management’s report~~ on our internal control over financial reporting ~~was not subject to attestation~~are set forth in Item 8 of this Annual Report on Form 10-K and are incorporated by ~~our independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission for smaller reporting companies that permit us to provide only management’s report~~reference herein.

~~(c) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING~~Internal Control over Financial Reporting.

There has been no change in our internal control over financial reporting that occurred during the last fiscal quarter covered by this annual report (our fourth fiscal quarter) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

The information required by this Item 10 is incorporated herein by reference from our proxy statement for our ~~2016~~2023 Annual Meeting of Shareholders under the headings ~~“Election~~"Proposal One: Election of Directors,~~” “Corporate Governance,” “Executive Officers”~~" "Corporate Governance" and ~~“Section 16(a) Beneficial Ownership Reporting Compliance,”~~"Executive Officers and Senior Management," which proxy statement will be filed pursuant to Regulation 14A within 120 days after the March ~~26, 2016~~25, 2023 fiscal year end.

The information required by this Item 11 is incorporated herein by reference from our proxy statement for our ~~2016~~2023 Annual Meeting of Shareholders under the headings ~~“Executive Compensation”~~"Compensation Discussion and ~~“Director~~Analysis," "Director Compensation,”" "Compensation Committee Report," "CEO Pay Ratio," and "Pay Versus Performance," which proxy statement will be filed pursuant to Regulation 14A within 120 days after the March ~~26, 2016~~25, 2023 fiscal year end.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

With the exception of the information presented in the table below, the information required by this Item 12 is incorporated herein by reference from our proxy statement for our ~~2016~~2023 Annual Meeting of Shareholders under the headings ~~“Security~~"Security Ownership of Certain Beneficial ~~Owners”~~Owners" and ~~“Security~~"Security Ownership of Management,”" which proxy statement will be filed pursuant to Regulation 14A within 120 days after the March ~~26, 2016~~25, 2023 fiscal year end.

Securities Authorized for Issuance Under Equity Compensation Plans as of March ~~26, 2016:~~25, 2023:

		Page
Cautionary Note Regarding Forward-Looking Statements		1
Part I		~~Page(s)~~
~~Part I~~
Item 1.		Business		~~1-12~~1
Item 1A.		Risk Factors		~~12-17~~13
Item 1B.		Unresolved Staff Comments		1721
Item 2.		Properties		1821
Item 3.		Legal Proceedings		1822
Item 4.		Mine Safety Disclosures		1822

~~Part II~~
Part II
Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
		Purchases of Equity Securities		1922
Item 6.	[Reserved]	~~Selected Financial Data~~22		~~19-20~~
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		~~20-30~~22
Item 7A.		Quantitative and Qualitative Disclosures about Market Risk		3036
Item 8.		Financial Statements and Supplementary Data		~~31-53~~37
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		5470
Item 9A.		Controls and Procedures		5470
Item 9B.		Other Information	70
Item 9C.	54Disclosure Regarding Foreign Jurisdictions That Prevent Inspections	70

~~Part III~~
Part III
Item 10.		Directors, Executive Officers and Corporate Governance		5571
Item 11.		Executive Compensation		5571
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		71
		~~Stockholder Matters~~		55
Item 13.		Certain Relationships and Related Transactions, and Director Independence		5571
Item 14.		Principal Accountant Fees and Services		5572

~~Part IV~~
Part IV
Item 15.		Exhibits and Financial Statement Schedules		5672
~~Signatures~~Item 16.	Form 10-K Summary			5775
~~Index to Exhibits~~Signatures		~~58-60~~76

	Geographic Expansion	~~Geographic~~Increased Capabilities		~~Increased~~Leveraged	~~Leveraged~~Infrastructure
Elite		~~Expansion~~		~~Capabilities~~	~~Infrastructure~~
~~Ulrich~~		✓		✓	✓
~~Apex~~Complete Calibrations	✓	✓
e2b	✓		✓
~~Calibration Technologies~~			Alliance	✓
~~Anmar~~		✓
~~Nordcal~~				✓	✓
~~Spectrum~~ Tangent	✓	✓		✓
~~Dispersion~~ NEXA	✓	✓
Upstate Metrology	✓		✓

●	~~permanent on-site~~ ●	periodic onsite services: Transcat technicians travel to a customer’s location, including aboard vessels docked at shipyards, and provide bench-top or in-line calibration or laboratory services on predetermined service cycles;
	●	client-based-laboratory services: Transcat establishes and manages a calibration service program within a customer’s facility; and
●	~~periodic on-site services: Transcat technicians travel to a customer’s location and provide bench-top or in-line calibration or laboratory services on predetermined service cycles;~~
●	~~in-house services: services are performed at one of our Calibration Service Centers (often accompanied by pick-up and delivery services); and~~
●	mobile calibration services: services are completed on a customer’s property within one of our mobile calibration ~~unit.~~units.

~~Name~~	~~Age~~	~~Position~~
~~Lee D. Rudow~~	51	~~President and Chief Executive Officer~~
		~~Senior Vice President of Finance and Chief Financial Officer~~
~~John J. Zimmer~~	57	~~(retired effective March 27, 2016)~~
		~~Vice President of Finance (Chief Financial Officer effective~~
~~Michael J. Tschiderer~~	56	~~March 27, 2016)~~
~~Jennifer J. Nelson~~	45	~~Vice President of Human Resources~~
~~Michael W. West~~	45	~~Vice President of Inside Sales and Marketing~~
~~Scott D. Sutter~~	45	~~Vice President of Business Development~~
~~Robert A. Flack~~	46	~~Vice President of Operations~~
~~Scott D. Deverell~~	50	~~Corporate Controller and Principal Accounting Officer~~

			Approximate
Property	Location		~~Approximate~~ Square Footage
				~~Square~~
~~Property~~		~~Location~~		~~Footage~~
Corporate Headquarters, Calibration Service Center and Distribution Center		Rochester, NY			~~37,250~~48,500
~~Calibration Service Center~~		~~Fullerton, CA~~			~~12,000~~
~~Calibration Service Center~~		~~Boston, MA~~			~~4,000~~
~~Calibration Service Center~~		~~Burlington, ON~~			~~14,152~~
~~Calibration Service Center~~		~~Charlotte, NC~~			~~4,860~~
~~Calibration Service Center~~		~~Cherry Hill, NJ~~			~~10,800~~
~~Calibration Service Center~~		~~Dayton, OH~~			~~10,500~~
~~Calibration Service Center~~		~~Denver, CO~~			~~19,441~~
~~Calibration Service Center~~		~~Houston, TX~~			~~10,333~~
~~Calibration Service Center~~		~~Montreal, QC~~			~~26,558~~
~~Calibration Service Center~~		~~Boisbriand, QC~~			~~3,000~~
~~Calibration Service Center~~		~~Nashville, TN~~			~~6,000~~
~~Calibration Service Center~~		~~Ottawa, ON~~			~~3,990~~
~~Calibration Service Center~~		~~Tempe, AZ~~			~~4,169~~
Calibration Service Center and ~~Distribution Center~~Headquarters for Canadian Operations	Montreal, QC	~~Portland, OR~~		27,500	~~12,600~~
Calibration Service Center, Rental and Used Equipment Distribution Center	Houston, TX			22,300
Calibration Service Center	Denver, CO			19,400
Calibration Service Center	Los Angeles, CA			18,200
Calibration Service Center	Toronto, ON			16,900
Calibration Service Center	Philadelphia, PA			14,000
Calibration Service Center	Cleveland, OH			13,800
Calibration Service Center	Milford, MA			12,100
Calibration Service Center	Dayton, OH			12,000
Calibration Service Center	Boston, MA			8,900
Calibration Service Center	Indianapolis, IN			7,600
Calibration Service Center	Palm Beach, FL			7,600
Calibration Service Center	Portland, OR			7,000
Calibration Service Center	Cincinnati, OH			5,900
Calibration Service Center	St. Louis, MO			5,600
Calibration Service Center	San Diego, CA			5,500
Calibration Service Center	Charlotte, NC			4,900
Calibration Service Center	Chesapeake, VA			4,600
Calibration Service Center	Phoenix, AZ			4,200
Calibration Service Center	Ottawa, ON			4,000
Calibration Service Center	Decatur, AL			1,700
Calibration Service Center	San Juan, PR			~~1,560~~1,600
Calibration Service Center	Cork, Ireland	~~St. Louis, MO~~		1,600	~~4,400~~
Mobile Service Unit and Offices	Pittsburgh, PA			6,300
United Scale & Engineering:
~~Calibration Service Center~~		~~Green Bay, WI~~			~~3,320~~
Calibration Service Center and Warehouse	New Berlin, WI	~~McFarland, WI~~		16,000	~~6,000~~
Calibration Service Center and Warehouse	Madison, WI	~~New Berlin, WI~~		6,000	~~16,000~~
Calibration Service Center	Green Bay, WI	~~Ft. Wayne, IN~~		3,300	~~3,600~~
~~Unaccredited Service Center~~		~~Morris Plains, NJ~~			~~1,000~~
~~Calibration Service Center~~		~~San Diego, CA~~			~~5,500~~
Spectrum Technologies Inc. ~~(STI)~~(“STI”):
~~Unaccredited~~ Calibration Service Center and Warehouse		Paxinos, PA			~~14,520~~
~~STI Satellite Office~~		~~Bakersfield, CA~~			~~1,150~~
~~STI Satellite Office~~		~~Richmond Hill, ON~~			~~882~~
~~STI Satellite Office~~		~~Birmingham, AL~~			~~625~~
~~STI Satellite Office~~		~~Melrose, FL~~			~~200~~
~~STI Satellite Office~~		~~Mt. Airy, NC~~			~~200~~
~~STI Satellite Office~~		~~LaCrosse, WI~~			~~280~~
~~Mobile Calibration Unit and Offices~~		~~Somerset, PA~~			~~3,347~~
~~Office~~		~~Mississauga, ON~~			~~1,500~~
~~Warehouse (1)~~		~~Lincoln, MT~~			~~5,406~~

	●	On August 31, 2014, we acquired Ulrich Metrology Inc. (“Ulrich”). Headquartered in Montreal, Quebec, Ulrich is a provider of accredited and commercial calibrations throughout Canada that specializes in providing custom metrology solutions for the aerospace and defense, industrial manufacturing and life science industries.
●	~~On March 6, 2015, we~~Effective February 2, 2023, Transcat acquired substantially all of the assets of ~~Apex Metrology Solutions (“Apex”). Apex is~~Elite, a California based provider of ~~accredited and commercial calibrations, specializing in 3D metrology services, through its~~pipette calibration services.
	●	Effective September 28, 2022, Transcat purchased all of the outstanding capital stock of Complete Calibrations, an Irish company. Complete Calibrations is an ISO 17025 accredited ~~lab located~~calibration company specializing in ~~Ft. Wayne, Indiana.~~ calibration services for the life sciences industry.
	●	~~On June 22, 2015, we~~Effective September 27, 2022, Transcat acquired substantially all of the assets of ~~Calibration Technologies, Inc. (“Calibration Technologies”, a regional~~e2b, an Ohio based provider of ~~analytical instrument services including qualification, validation, repair and installation, headquartered in Morris Plains, New Jersey.~~ calibration services.
	●	Effective August 24, 2015, we acquired Anmar Metrology, Inc. (“Anmar”), a calibration and repair service provider with significant focus on the life science and defense market, headquartered in San Diego, California.
●	~~On August 25, 2015, we acquired Nordcal Calibration Inc. (“Nordcal”), a provider of radio frequency and electronic calibration and repair services, located in Montreal, Quebec.~~
●	~~Effective December~~May 31, ~~2015, we~~2022, Transcat acquired substantially all of the assets of ~~Spectrum Technologies, Inc. (“Spectrum”). Headquartered in Paxinos, Pennsylvania, Spectrum~~Alliance, an Ohio based provider of calibration services.
	●	Effective December 31, 2021, Transcat purchased all of the outstanding membership units of Tangent, a privately-held company. Tangent provides ~~commercial~~in-house and on-site calibrations ~~test equipment repair services~~of precision measurement and ~~product sales throughout North America, primarily~~control instrumentation to ~~companies~~customers in the life science, aerospace and ~~biomedical sectors.~~ other regulated industries, and has lab locations in Indianapolis, Indiana and Huntsville, Alabama.

●	●	calibration of their primary ~~standards;~~calibration assets, also called “standards”; and
●	●	overflow capability, either ~~on-site~~onsite or at one of our Calibration Service Centers, during periods of highdemand.

	●	Calibration – criticality risk assessment; calibration interval analysis; calibration plans/task lists; planning and scheduling.
	●	Maintenance and Spares – PM optimization; spares/BOM management; PM plans/task lists; planning and scheduling.
	●	Reliability – asset criticality assessments; asset hierarchy development; PdM plans/task lists; FMECA/RCA.
	●	CMMS – implementation and migration; data optimization; business intelligence; CMMS KPIs/reporting.
	●	Quality and Compliance – technical writing; compliance audits; remediation; compliance management.
	●	Validation – validation master plan; confidence assessment model; validation interval analysis; validation method/process optimization.

	FY 2016			FY 2015			FY 2014
Life Science/FDA-regulated		39	%		32	%		34	%
Industrial Manufacturing		24	%		29	%		28	%
Energy/Utilities		7	%		8	%		8	%
Chemical Manufacturing		6	%		7	%		7	%
Other		24	%		24	%		23	%
Total		100	%		100	%		100	%

●	~~Fax at 1-800-395-0543;~~
●	Telephone at 1-800-828-1470;

●	~~Developments in our relationships with current or future manufacturers of products we distribute;~~
●	~~Announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;~~
●	~~Litigation or governmental proceedings or announcements involving us or our industry;~~

●	~~Economic and other external factors, such as disasters or other crises;~~
●	~~Sales of our common stock or other securities in the open market;~~

●	~~Repurchases of our common stock on the open market or in privately-negotiated transactions;~~
●	~~Period-to-period fluctuations in our operating results; and~~
●	~~Our ability to satisfy our debt obligations.~~

●	~~The difficulty of integrating acquired operations and personnel with our existing operations;~~
●	~~The difficulty of developing and marketing new products and services;~~
●	~~The diversion of our management’s attention as a result of evaluating, negotiating and integrating acquisitions;~~

●	~~Our exposure to unforeseen liabilities of acquired companies; and~~
●	~~The loss of key employees of an acquired operation.~~

	First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter
Fiscal Year 2016:
High		$	10.45		$	9.96		$	10.10		$	10.41
Low		$	9.06		$	9.00		$	8.80		$	8.86

Fiscal Year 2015:
High		$	10.33		$	10.79		$	10.55		$	10.22
Low		$	8.96		$	8.71		$	8.63		$	9.10

●	~~Charges to our income to reflect the impairment of acquired intangible assets, including goodwill;~~
●	~~Interest costs and debt service requirements for any debt incurred in connection with an acquisition or new business venture; and~~
●	~~Any issuance of securities in connection with an acquisition or new business venture that dilutes or lessens the rights of our current shareholders.~~

●	The difficulty of integrating acquired operations and personnel with our existing operations;
●	Implementation or remediation of controls, procedures, and policies at the acquired company;
●	Integration of the acquired company’s accounting and other administrative systems;
●	In the case of foreign acquisitions, the need to integrate operations across different cultures and languages and to address the particular economic, currency, political, and regulatory risks associated with specific countries;
●	Currency and regulatory risks associated with operations in foreign countries;
●	The difficulty of developing and marketing new products and services;
●	The diversion of our management’s attention as a result of evaluating, negotiating and integrating acquisitions;
●	Our exposure to unforeseen liabilities of acquired companies; and
●	The loss of key employees of an acquired operation.

●	Charges to our income to reflect the impairment of acquired intangible assets, including goodwill;
●	Contingent consideration payments;
●	Agreements to provide indemnification for certain potential liabilities;
●	Interest costs and debt service requirements for any debt incurred in connection with an acquisition or new business venture; and
●	Any issuance of securities in connection with an acquisition or new business venture that dilutes or lessens the rights of our current shareholders.

●	The number, scope and timing of ongoing client engagements;
●	The timing of the commencement, completion and termination of engagements, which in many cases is unpredictable;
●	Our ability to continually secure new business engagements;
●	Our ability to transition technical service providers promptly from completed projects to new assignments, and to engage newly-hired technical service providers quickly in revenue-generating activities;
●	Our ability to forecast demand for our services and thereby maintain appropriate headcount in each of our geographies and workforces;
●	Unanticipated changes in the scope of client engagements;
●	Our need to devote time and resources to sales, training, professional development and other non-billable activities;
●	Our ability to retain key colleagues and consulting professionals;
●	Conditions affecting the life sciences industry; and
●	General financial and economic conditions.

●	Clients’ perception of our ability to add value through our services;
●	The market demand for the services we provide;
●	Our ability to develop new services and the introduction of new services by competitors;
●	The pricing policies of our competitors;
●	The extent to which our clients develop in-house or other capabilities to perform the services that they might otherwise purchase from us; and
●	General financial and economic conditions.

	●	Developments in our relationships with current or future manufacturers of products we distribute;
	●	Announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
	●	Litigation or governmental proceedings or announcements involving us or our industry;
	●	Economic and other external factors, such as inflation, recession, disasters or other national or global crises;
	●	Public health issues including pandemics and epidemics, such as the COVID-19 pandemic;
	●	Sales of our common stock or other securities in the open market;
	●	Repurchases of our common stock on the open market or in privately-negotiated transactions;
	●	Period-to-period fluctuations in our operating results; and
	●	Our ability to satisfy our debt obligations.

	For the Fiscal Years Ended
	March 26,		March 28,		March 29,		March 30,		March 31,
	2016		2015		2014		2013		2012
Statements of Income Data:
Total Revenue	$	122,166	$	123,624	$	118,508	$	112,296	$	110,020
Total Cost of Revenue		93,047		94,537		88,718		84,892		82,896
Gross Profit		29,119		29,087		29,790		27,404		27,124
Operating Expenses		22,817		22,319		23,085		21,458		21,696
Operating Income		6,302		6,768		6,705		5,946		5,428
Interest and Other Expense, net		295		345		259		228		182
Income Before Income Taxes		6,007		6,423		6,446		5,718		5,246
Provision for Income Taxes		1,883		2,397		2,462		2,014		1,944
Net Income	$	4,124	$	4,026	$	3,984	$	3,704	$	3,302

Share Data:
Basic Earnings Per Share	$	0.60	$	0.59	$	0.56	$	0.50	$	0.45
Basic Average Shares Outstanding		6,887		6,798		7,080		7,404		7,309
Diluted Earnings Per Share	$	0.58	$	0.57	$	0.54	$	0.49	$	0.43
Diluted Average Shares Outstanding		7,121		7,059		7,357		7,592		7,651
Closing Price Per Share	$	10.14	$	9.59	$	9.28	$	6.36	$	13.11

	As of or for the Fiscal Years Ended
	March 26,			March 28,			March 29,			March 30,			March 31,
	2016			2015			2014			2013			2012
Balance Sheets and Working Capital Data:
Inventory, net		$	6,520		$	6,750		$	6,181		$	6,803	$	6,396
Property and Equipment, net			12,313			9,397			7,089			6,885		5,306
Goodwill and Intangible Assets, net			37,323			24,477			20,035			21,283		15,839
Total Assets			76,707			62,149			53,874			55,047		44,977
Depreciation and Amortization			3,946			3,090			2,945			2,702		2,896
Capital Expenditures			4,101			3,500			1,961			2,657		1,391
Long-Term Debt			19,073			12,168			7,593			8,017		3,365
Shareholders’ Equity			38,911			34,318			30,083			31,650		27,378

	FY 2016		FY 2015
Gross Profit Percentage:
Service Gross Profit	26.3	%	27.2	%
Distribution Gross Profit	21.5	%	20.9	%
Total Gross Profit	23.8	%	23.5	%

As a Percentage of Total Revenue:
Service Revenue	48.5	%	41.9	%
Distribution Sales	51.5	%	58.1	%
Total Revenue	100.0	%	100.0	%

Selling, Marketing and Warehouse Expenses	11.1	%	11.2	%
Administrative Expenses	7.5	%	6.8	%
Total Operating Expenses	18.6	%	18.0	%

Operating Income	5.2	%	5.5	%

Interest and Other Expense, net	0.3	%	0.3	%

Income Before Income Taxes	4.9	%	5.2	%
Provision for Income Taxes	1.5	%	1.9	%
Net Income	3.4	%	3.3	%

	FY 2023			FY 2022
As a Percentage of Total Revenue:
Service Revenue		62.8	%		59.5	%
Distribution Sales		37.2	%		40.5	%
Total Revenue		100.0	%		100.0	%

Gross Profit Percentage:
Service Gross Profit		32.2	%		31.9	%
Distribution Gross Profit		25.3	%		23.5	%
Total Gross Profit		29.6	%		28.5	%

Selling, Marketing and Warehouse Expenses		10.7	%		10.1	%
General and Administrative Expenses		11.9	%		11.5	%
Total Operating Expenses		22.6	%		21.6	%

Operating Income		7.0	%		6.9	%

Interest and Other Expenses, net		1.2	%		0.5	%

Income Before Provision for Income Taxes		5.8	%		6.4	%
Provision for Income Taxes		1.2	%		0.9	%
Net Income		4.6	%		5.6	%

	For the Years Ended
	March 26,		March 28,		Change
	2016		2015		$			%
Revenue:
Service	$	59,202	$	51,801	$	7,401		14.3	%
Distribution		62,964		71,823		(8,859	)	(12.3	%)
Total	$	122,166	$	123,624	$	(1,458	)	(1.2	%)

	Fiscal Year Ended
	March 25,		March 26,		Change
	2023		2022		$		%
Revenue:
Service	$	144,883	$	122,005	$	22,878		18.8	%
Distribution		85,686		82,954		2,732		3.3	%
Total	$	230,569	$	204,959	$	25,610		12.5	%

	FY 2016				FY 2015
	Q4	Q3	Q2	Q1	Q4	Q3	Q2	Q1
Service Revenue Growth	21.4%	10.5%	12.7%	11.5%	7.5%	9.4%	9.8%	3.4%

	FY 2016				FY 2015
	Q4	Q3	Q2	Q1	Q4	Q3	Q2	Q1
Trailing Twelve-Month:
Service Revenue	$59,202	$56,112	$54,793	$53,198	$51,801	$50,793	$49,706	$48,583
Service Revenue Growth	14.3%	10.5%	10.2%	9.5%	7.5%	8.2%	9.7%	11.3%

	FY 2023												FY 2022
	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Trailing Twelve-Month:
Service Revenue	$	144,883		$	139,787		$	134,047		$	128,324		$	122,005		$	116,315		$	110,854		$	105,864
Service Revenue Growth		18.8	%		20.2	%		20.9	%		21.2	%		20.5	%		19.5	%		17.2	%		13.1	%

	FY 2016								FY 2015
	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Percent of Service Revenue:
In-House	84.1	%	81.5	%	81.4	%	82.4	%	82.8	%	81.8	%	81.6	%	82.8	%
Outsourced	14.0	%	16.9	%	16.7	%	15.8	%	15.4	%	16.4	%	16.5	%	15.1	%
Freight Billed to Customers	1.9	%	1.6	%	1.9	%	1.8	%	1.8	%	1.8	%	1.9	%	2.1	%
	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

	FY 2016				FY 2015
	Q4	Q3	Q2	Q1	Q4	Q3	Q2	Q1
Distribution Sales (Decline) Growth	(14.4%)	(12.0%)	(17.4%)	(5.0%)	5.5%	(2.9%)	6.4%	0.1%

	FY 2023								FY 2022
	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Distribution Sales Growth		5.1%		3.7%		1.6%		2.7%		7.2%		7.2%		22.2%		27.0%

	FY 2016				FY 2015
	Q4	Q3	Q2	Q1	Q4	Q3	Q2	Q1
Total Pending Product Shipments	$2,966	$3,421	$3,124	$2,858	$3,215	$3,838	$3,383	$2,860
% of Pending Product Shipments
that were Backorders	80.3%	73.8%	78.4%	75.8%	73.9%	73.9%	69.0%	64.1%

	FY 2016				FY 2015
	Q4	Q3	Q2	Q1	Q4	Q3	Q2	Q1
Service Gross Margin	30.3%	23.5%	24.4%	26.1%	33.2%	24.5%	26.0%	24.2%