Revenue recognized from contracts with customers. Transcat is required to adopt ASU 2014-09 in itsprior period performance obligations for the third quarter of the fiscal year ending March 30, 2019 (“2024 (“fiscal year 2019”2024”). This new standard supercedes previous guidance on was immaterial. As of December 23, 2023, the Company had no unsatisfied performance obligations for contracts with an original expected duration of greater than one year. Pursuant to ASC 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 requires the usedeferred contract costs recorded on our Consolidated Balance Sheets as of more estimates December 23, 2023 and judgments than the present standards. It also requires additional disclosures. We are continuing to evaluate certain contracts to determine their treatment under ASU 2014—09. The Company does not expect the adoption of this ASU to have a material impact on the Consolidated Financial Statements.March 25, 2023 were immaterial. See Note 4 for disaggregated revenue information.

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 the 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 and cash equivalents, 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 December 23, 2017 2023 and March 25, 2017,2023, investment assets totaled $0.8$0.2 million, and $0.7 million, respectively 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 expensecost 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. In 2016, FASB issued ASU 2016-09awards expected to simplify certain aspects of the accounting for share-based payment transactions to employees. The Company elected to early adopt this ASU in the fourth quarter of fiscal year 2017. Upon adoption, excessvest. Excess tax benefits for share-based award activity are reflected in the statementConsolidated Statements of incomeIncome 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 the firstnine months of the fiscal year ending March 31, 2018 (“fiscal year 2018”)2024 and fiscal year 2017,2023, the Company recorded non-cash stock-based compensation expensecost of $1.1$3.3 million and $0.3$2.8 million, respectively, in the Consolidated Statements of Income.

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Foreign Currency Translation and Transactions:The accounts of Cal OpEx Limited (d/b/a Transcat Ireland), an Irish company, and Transcat Canada Inc., aboth of which are wholly-owned subsidiarysubsidiaries of the Company, are maintained in the local currency (Canadian dollars)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 its Canadian business transactions.transactions denominated in foreign currency. The net foreign currency was a net loss was less thanof $0.1 million duringfor each of the firstnine months of each of fiscal years 2018year 2024 and 2017.fiscal year 2023. The Company continually utilizes short-term foreign exchange forward contracts to reduce the risk that its future earnings willdenominated 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 loss of $0.1 million during the first nine months of fiscal year 2018 and a gain of $0.1$0.3 million during the firstnine months of fiscal year 2017,years 2024 and 2023, respectively, was recognized as a component of other expenseInterest 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 December 23, 2017,2023, the Company had a foreign exchange contract, which matured in January 2018, 2024, outstanding in the notional amount of $5.4$2.0 million. The foreign exchangeThis contract was subsequently renewed in January 2018 and continues to beremains in place. The Company does not use hedging arrangements for speculative purposes.

Earnings Per Share:Basic earnings per share of the Company's common stock, par value $0.50 per share ("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 beenproceeds received from the exercise of options and unvested restricted stock units and the related tax benefits are considered to have been used to purchase shares of common stock at the average market prices during the period, and the resulting net additional shares of common stock are included in the calculation of average shares of common stock outstanding.

For the third quarter of fiscal year 20182024, the net additional common stock equivalents had a $0.01($0.01) effect on the calculation of diluted earnings per share. For the third quarter of fiscal year 2017,2023, the net additional common stock equivalents had no effect on the calculation of dilutivediluted earnings per share. For the firstnine months of each of the first nine months of fiscal year 2018years 2024 and fiscal year 2017,2023, the net additional common stock equivalents had a $0.01($0.01) effect on the calculation of diluted earnings per share. The average shares outstanding used to compute basic and diluted earnings per share are as follows:follows (amounts in thousands):

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.

Intangible assets, namely customer base and covenants not to compete, represent an allocation of purchase price to identifiable intangible assets of an acquired business. 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):

Recently IssuedAdopted Accounting Pronouncements:In May 2017, June 2016, the FASBFinancial Accounting Standard Board (“FASB”) issued ASU 2017-09, Scope of Modification Accounting, Compensation—Stock Compensation2016-13, Financial Instruments - Credit Losses (Topic 718). This326), 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 provides clarity and reduces both diversity in practice and cost and complexity when applyingreplaces the guidance in Topic 718"incurred loss" model with an "expected credit loss" model that requires entities to a change to the terms or conditions of a share-based payment award. Thisestimate an expected lifetime credit loss on financial assets, including trade accounts receivable. The ASU is effective for annual reportingfiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 and should be applied prospectively. Early2022. Allowance for credit losses for accounts receivable is the most significant item for the Company under this ASU. The Company adopted ASU 2016-13 effective on March 26, 2023.  The adoption of this ASU is permitted. The Company does standard did not expect adoption of this ASU to have a material impact on its Consolidated Financial Statements.our consolidated financial statements.

NOTE 2– LONG-TERM DEBT

Description:

On October 30, 2017, July 7, 2021, the Company entered into anthe Second Amended and Restated Credit Facility Agreement (the “2017“Credit Agreement”) with Manufacturers and Traders Trust Company (“M&T”), whichthat amended and restated ourin its entirety the Company’s prior credit facility agreement. agreement with M&T.

The 2017Credit Agreement extendedprovides for a revolving credit commitment (the “Revolving Credit Commitment”) of $80.0 million through June 2026, with a letter of credit subfacility of $10.0 million.  The Company's 2018 term loan, with an original principal amount of $15.0 million (the "2018 Term Loan"), is also provided for under the Credit Agreement.

The Credit Agreement allows the Company to use up to $50.0 million under the Revolving Credit Commitment for acquisitions in any single fiscal year.  The Credit Agreement restricts the Company's ability to complete acquisitions of businesses with a principal place of business located in the United Kingdom or the European Union to an aggregate purchase price of $40.0 million during the term of the Company’s $30.0Credit Agreement, if the acquisition is financed directly or indirectly with the Revolving Credit Commitment.

Under the Credit Agreement, the Company may make restricted payments up to $25.0 million in the aggregate over the term of the Credit Agreement and $10.0 million in any single fiscal year to repurchase shares and pay dividends.

As of December 23, 2023, $80.0 million was available for borrowing under the revolving credit facility.  As of December 23, 2023, there were no amounts outstanding under the revolving credit facility. During the firstnine months of fiscal year 2024, $12.9 million was drawn from the revolving credit facility (the “Revolving Credit Facility”) to October 29, 2021. and used for business acquisitions.

As of December 23, 2017, $30.0 million was available under the Revolving Credit Facility, of which $11.6 million was outstanding and included in long-term debt on the Consolidated Balance Sheet. The 2017 Agreement also increased the amount of the Company’s outstanding term loan to $15.0 million (the “2017 Term Loan”)2023, replacing the previous term loan. As of December 23, 2017, $14.6$4.7 million was outstanding on the 20172018 Term Loan, of which $2.1$2.3 million was included in current liabilities on the Consolidated Balance SheetSheets with the remainder included in long-term debt. The 20172018 Term Loan requires principaltotal amortizing repayments (principal plus interest) of $0.2 million per month plus interest through September 2022 with a $4.3 million repayment required on October 29, 2022. Under the 2017 Agreement, borrowings that may be used for business acquisitions are limited to $20.0 million per fiscal year. During the first nine months of fiscal year 2018, no borrowings were used for business acquisitions.

Table of Contentsits maturity date in December 2025.

The allowable leverage ratio under the 2017 Agreement remains at a maximum multiple of 3.0 of total debt outstanding compared to earnings before income taxes, depreciation and amortization, and non-cash stock-based compensation expense for the preceding four consecutive fiscal quarters. The excess funds of the 2017 Term Loan over the previous term loan were used to repay amounts outstanding under the Revolving Credit Facility.

Previously, on March 31, 2016, the Company entered into Amendment 3 (“Amendment 3”) to the prior credit agreement. Under Amendment 3, borrowings that could be used for business acquisitions were limited to $15.0 million in fiscal years 2018 and 2019. Amendment 3 also provided the Company with a $10.0 million term loan. The term loan required principal repayments of $0.1 million per month plus interest. Total annual repayment amounts of $1.4 million were required in fiscal years 2017 through 2021 with a $3.0 million repayment required in fiscal year 2022. Amendment 3 also increased the allowable leverage ratio to a maximum of 3.0 from 2.75. As described above, in the third quarter of fiscal year 2018, we entered into the 2017 Agreement that amended and restated the prior credit agreement, including Amendment 3.

Interest and Other Costs:Interest Effective July 1, 2023, interest on outstanding borrowings ofunder the Revolving Credit Facility and term loanrevolving credit facility accrue, at Transcat’s election, at either the variable one-month London Interbank Offered Rate (“LIBOR”)Daily Simple SOFR or a fixed rate for a designated period at the LIBORSOFR corresponding to such period (subject to a 0.25% floor), in each case, plus a margin.  CommitmentUnused fees accrue based on the average daily amount of unused credit available on the Revolving Credit Facility.revolving credit facility. Interest rate margins and commitmentunused fees are determined on a quarterly basis based upon the Company’s calculated leverage ratio, as defined in the 2017 Agreement. The one-month LIBOR at December 23, 2017 was 1.6%.ratio. The Company’s interest rate for the revolving credit facility for the firstnine months of fiscal year 20182024 ranged from 3.2%6.4% to 3.4%7.1%.  Interest on outstanding borrowings under the 2018 Term Loan accrue at a fixed rate of 3.90% over the term of the loan. 

Covenants:The 2017Credit Agreement has certain covenants with which the Company has tomust comply, including a fixed charge coverage ratio covenant, which prohibits the Company's fixed charge ratio from being less than 1.15 to 1.00, and a leverage ratio covenant.covenant, which prohibits the Company's leverage ratio from exceeding 3.00 to 1.00. The Company was in compliance with all loan covenants and requirements during the third quarterfirstnine months of fiscal year 2018.2024. The Company's leverage ratio, as defined in the Credit Agreement, was 0.12 at December 23, 2023, compared with 1.60 at March 25, 2023.

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.revolving credit facility.

NOTE 3– STOCK-BASED COMPENSATION

The

In September 2021, the Transcat, Inc. 20032021 Stock Incentive Plan as Amended(the “2021 Plan”) was approved by shareholders and Restatedbecame effective. The 2021 Plan replaced the Transcat, Inc. 2003 Incentive Plan (the “2003“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 December 23, 2017, 1.12023, 0.6 million shares of common stock were available for future grant under the 20032021 Plan.

The Company receives an excess tax benefit related to restricted stock vesting and stock options exercised and redeemed. The discrete tax benefits related to share-based compensation and stock option activity during the firstnine months of fiscal year 2024 and fiscal year 2023 were $0.7 million and $0.5 million, respectively.

Restricted Stock Units:The Company generally grants time-based and performance-based restricted stock units as a primary 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 generallyare either time vested, or vest following the third fiscal year from the date of grant subject to certain cumulative diluted earnings per share growthor cumulative adjusted EBITDA targets over the eligible period. The restricted stock units granted in June 2017 were time vested.

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.

The Company achieved 50% of the target level for the performance-based restricted stock units granted in the fiscal year ended March 28, 2015 and as a result, issued 25 shares of common stock to executive officers and certain key employees during the first quarter of fiscal year 2018.

The following table summarizes the non-vested performance-based restricted stock units outstanding as of December 23, 2017:2023 (in thousands, except per unit data):

Total expense relating to performance-based restricted stock units, based on grant date fair value and the achievement criteria, was $0.6$2.4 million and $0.2$1.7 million respectively in the firstnine months of fiscal years 2018 and 2017. Total expense relating to time vested restricted stock units was less than $0.1 million for the first nine months of fiscal year 2018.2024 and fiscal year 2023, respectively. As of December 23, 2017,2023, unearned compensation, to be recognized over the grants’ respective service periods, totaled $1.2$4.4 million.

Stock Options:Options vest either immediately or over a periodThe Company grants stock options to employees and directors with an exercise price equal to the quoted market price of up to four years using a straight-line basis and expire either five years or ten years fromthe Company’s stock at the date of the grant. The expense relating tofair 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-line 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 entire award.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 the firstthree and nine months of fiscal year 2024 and fiscal year 2023: