As permitted by General Instruction G of Form 10-K, certain portions, as expressly described in this report, of the registrant's Definitive Proxy Statement for the 2020 Annual Meeting of Stockholders to be filed with the SEC are incorporated by reference into Part III of this Annual Report on Form 10-K.

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Oil & Gas. Process heating is used to facilitate the processing, transportation and freeze protection of energy products in both upstream and downstream oil and gas applications. According to the International Energy Agency ("IEA"), natural gas supplies 22% of the energy used worldwide, makes up nearly a quarter of electricity generation and plays a crucial role as a feedstock for industry. The oil and gas end market accounted for approximately 38% of the total market for industrial process heating in 2019, or approximately $1.5 billion in revenue. Global oil prices have significantly declined in the last twelve months to the lowest levels on record due to the impact of both reduction in demand due to the COVID-19 pandemic as well as the current over-supply from oil producing regions. Customers have responded with reduced capital spending forecasts in the near term.

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Chemical Processing. Process heating is required for temperature maintenance and freeze protection in a variety of chemical processing applications. Factors that may impact process heating demand in chemicals end markets include the rapid industrialization of the developing world, a shift in base chemical processing operations to low-cost feedstock regions, a transition of Western chemical processing activities from commodity products to specialty products and environmental compliance. The IEA estimates that new global petrochemicals capacity will account for 33% of oil-demand growth by 2030. We estimate that the chemicals end market (including petrochemical) accounted for approximately 14% of the total market for industrial process heating in 2019, or approximately $560 million in revenue.

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Power Generation. Process heating is required for high-temperature product maintenance, freeze protection and environmental regulation compliance in coal and gas facilities and for safety systems in nuclear facilities. An important driver of demand for process heating solutions for power generation is increasing demand for electricity worldwide. We estimate that the power generation end market accounted for approximately 7% of the total market for industrial process heating in 2019, or approximately $280 million in revenue. According to the IEA's World Energy Outlook 2019, electricity currently accounts for 19% of final energy consumption, a share that is expected to increase as demand growth for electricity outpaces all other fuels. According to the IEA's World Energy Outlook 2018's Stated New Policies Scenario, electricity will account for 24% of final energy consumption in 2040.

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Transportation. Process heating is required to safely clear and heat rail switches, melt snow and ice from platforms, and provide comfort heating and defrosting in rolling stock. With over 1.1 million kilometers of operational railway in the world, it is still one of the most economical and safe solutions for passengers and products globally. According to an estimate by IEA, passenger and freight activity will more than double by 2050 given current trends. Of this growth, the commercial rail and transit sector represents the largest increase at approximately 8.9% through 2028. We estimate that our transportation industry end markets accounted for approximately 6% of the total market for industrial process heating in fiscal 2019, or approximately $240 million in revenue.

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•	self-regulating and power limiting heating cables made with proprietary materials technology, which automatically regulate heat output as pipe temperature changes as well as constant wattage heating cables;

•	mineral insulated, or "MI," cable, which is a high-performance heat tracing product made without polymers for the highest temperature applications and harsh environments;

•	long-line skin effect trace heating systems, which can heat lines in excess of 15 miles long from a single power point;

•	heat traced and insulated tubing bundles for environmental gas sampling systems;

•	heat transfer compounds and steam tubing for comprehensive steam tracing solutions;

•	tank heating and insulation systems;

•	control and monitoring systems custom builds for heat tracing applications leveraging the latest connected and secure software, firmware, and electronics technologies;

•	control and power distribution panel and skid assemblies;

•	project engineering and management services delivering optimized engineering drawing and specification packages for heat trace systems for complex industrial facilities;

•	design automation software that automates, optimizes and ensures accuracy in the generation of thousands of installed CAD drawings, bills-of-materials and specification typical of a large project;

•	construction and field services for the installation, operation and maintenance of heat trace systems;

•	products and services from the THS transaction, which include high efficiency explosion-proof gas catalytic heaters, convection heaters designed for rugged industrial applications, electric heaters engineered for industrial processes and environments, advanced gas and liquid filtration systems and highly efficient heat transfer systems for rail track and switch equipment; and

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•	Thermon Power Solutions, which includes equipment for temporary electric power distribution and lighting products used in energy infrastructure construction projects and maintenance/turnaround projects.

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•	Environmental heating (branded as “Ruffneck” and “Catadyne”) - which provides electric or gas-powered space heating for both hazardous and non-hazardous areas;

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•	Process heating (branded as “Caloritech”) - provides a myriad of highly-engineered heating products to multiple end-markets with the purpose of heating and maintaining a process fluid at specified temperatures. Some products also serve the transportation sector with both radiant and convection-style heating;

•	Filtration (branded as “3L Filters”) - which provides highly-specialized filtration solutions for the most stringent environments, including the nuclear industry; and

•	Transportation (branded as “Hellfire”, “ArcticSense” and other) - provides heating applications to both rolling stock (rail cars) and rail infrastructure (track and switch).

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•	changes in a specific country's or region's political, social or economic conditions, particularly in emerging markets;

•	changes in trade relations between the United States and those foreign countries in which our customers and suppliers have operations, including protectionist measures such as tariffs, import or export licensing requirements and trade sanctions;

•	restrictions on our ability to own or operate subsidiaries in, expand in and, if necessary, repatriate cash from, foreign jurisdictions;

•	exchange controls and currency restrictions;

•	the burden of complying with numerous and potentially conflicting legal requirements;

•	potentially negative consequences from changes in U.S. and foreign tax laws;

•	difficulty in staffing and managing (including ensuring compliance with internal policies and controls) geographically widespread operations;

•	different regulatory regimes controlling the protection of our intellectual property;

•	difficulty in the enforcement of contractual obligations in non-U.S. jurisdictions and the collection of accounts receivable from foreign accounts; and

•	transportation delays or interruptions.

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•	diversion of management time and attention from daily operations;

•	difficulties integrating acquired businesses, technologies and personnel into our business;

•	difficulties in realization of expected synergies and revenue creation or cross-selling opportunities;

•	potential loss of key employees, key contractual relationships or key customers of acquired companies or of us; and

•	assumption of the liabilities and exposure to unforeseen liabilities of acquired companies.

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•	risk exposing our confidential manufacturing processes and other trade secreted information that may lead to new and increased entrants and competitors in our business or cause other damage to the business;

•	expose our customers' facilities and projects to increased safety and security risk;

•	materially damage business partner and customer relationships;

•	impact our reputation in the markets in which we compete for business;

•	adversely impact our financial results and expose us to potential risk of loss or litigation; and/or

•	require us to incur substantial costs or require us to change our business practices.

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•	general economic conditions and cyclicality in the end markets we serve;

•	the effects of the ongoing COVID-19 pandemic or other global pandemics or catastrophes;

•	future growth of energy and chemical processing capital investments;

•	a material disruption at any of our manufacturing facilities;

•	delays in our customers' projects for which our products are a component;

•	the timing of completion of large Greenfield projects;

•	competition from various other sources providing similar heat tracing products and services, or other alternative technologies, to customers; and

•	the seasonality of demand for MRO/UE orders, which is typically highest during the second and third fiscal quarters.

•	quarterly fluctuations in our operating results;

•	changes in investors' and analysts' perception of the business risks and conditions of our business or our competitors;

•	our ability to meet the earnings estimates and other performance expectations of financial analysts or investors;

•	unfavorable commentary or downgrades of our stock by equity research analysts;

•	the emergence of new sales channels in which we are unable to compete effectively;

•	disruption to our operations;

•	fluctuations in the stock prices of our peer companies or in stock markets in general; and

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•	general economic or political conditions, including the effects of the COVID-19 pandemic.

•	authorizing our board of directors, without further action by the stockholders, to issue blank check preferred stock;

•	limiting the ability of our stockholders to call and bring business before special meetings and to take action by written consent in lieu of a meeting;

•	requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors;

•	authorizing our board of directors, without stockholder approval, to amend our amended and restated bylaws;

•	limiting the determination of the number of directors on our board of directors and the filling of vacancies or newly created seats on our board of directors to our board of directors then in office; and

•	subject to certain exceptions, limiting our ability to engage in certain business combinations with an "interested stockholder" for a three-year period following the time that the stockholder became an interested stockholder.

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•	Limiting discretionary spending across the organization;

•	As a precautionary measure to maximize liquidity, the Company drew down $30.0 million on our senior secured credit facility;

•	Decreasing payroll expense, including temporarily decreasing salaries for certain officers and implementing a reduction in force initiative that will reduce ongoing personnel cost by $6.5 million on an annual basis; and

•	Reducing the budget for capital expenditures in the fiscal year ending March 31, 2021 by approximately $6.9 million as compared to fiscal 2020.

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Organization

On April 30, 2010, a group of investors led by entities affiliated with CHS Capital LLC ("CHS") and two other private equity firms acquired a controlling interest in Thermon Holding Corp. and its subsidiaries from Thermon Holdings, LLC ("Predecessor") for approximately $321,500 in a transaction that was financed by approximately $129,252 of equity investments by CHS, two other private equity firms and certain members of our current and former management team (collectively, the "management investors") and $210,000 of debt raised in an exempt Rule 144A senior secured note offering to qualified institutional investors (collectively, the "CHS Transactions"). The proceeds from the equity investments and debt financing were used both to finance the acquisition and pay related transaction costs. As a result of the CHS Transactions, Thermon Group Holdings, Inc. became the ultimate parent of Thermon Holding Corp. Thermon Group Holdings, Inc. and its direct and indirect subsidiaries are referred to collectively as "we," "our," or the "Company" herein. We refer to CHS and the two other private equity fund investors collectively as "our former private equity sponsors."

Basis of Consolidation

The consolidated financial statements include the accounts of the Company, its subsidiaries and entities in which the Company has a controlling financial interest. The ownership of non-controlling investors is recorded as non-controlling interests. All significant inter-company balances and transactions have been eliminated in consolidation. Consolidated subsidiaries domiciled in foreign countries comprised approximately 59%, 63% and 55%, of the Company's consolidated sales for fiscal 2020, fiscal 2019 and fiscal 2018, respectively, and 61% and 65%, of the Company's consolidated total assets at March 31, 2020 and 2019, respectively.

Segment Reporting

We operate in four reportable segments based on four geographic countries or regions in which we operate: (i) United States and Latin America ("US-LAM"), (ii) Canada, (iii) Europe, Middle East and Africa ("EMEA") and (iv) Asia-Pacific ("APAC"). Within our four reportable segments, our core products and services are focused on thermal solutions primarily related to the electrical heat tracing industry. Each of our reportable segments serves a similar class of customers, including engineering, procurement and construction companies, international and regional oil and gas companies, commercial sub-contractors, electrical component distributors and direct sales to existing plant or industrial applications. Profitability within our segments is measured by operating income. Profitability can vary in each of our reportable segments based on the competitive environment within the region, the level of corporate overhead, such as the salaries of our senior executives, and the level of research and development and marketing activities in the region, as well as the mix of products and services. Since March 2015, we acquired Thermon Heating Systems (formerly known as CCI Thermal Technologies Inc.) ("THS"), Unitemp, IPI and Thermon Power Solutions Inc. (formerly known as Sumac Fabrication Co. Ltd.) (“TPS”). THS develops and produces advanced industrial heating and filtration solutions for industrial and hazardous area applications that closely align with Thermon's core business and serves similar end markets in North America. As such, we have elected to report THS's operations through our US-LAM and Canada reportable segments. Both Unitemp and IPI offer thermal solutions and have been included in our EMEA and US-LAM reportable segments, respectively. TPS provides temporary power products that differ from our core thermal solutions business. As operating results from TPS comprises less than 10% of our total sales and operating income, Sumac has been aggregated in our Canada segment. See Note 18, "Segment Information" for financial data relating to our four reportable geographic segments.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements.

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Cash Equivalents

Cash and cash equivalents consist of cash in bank and money market funds. All highly liquid investments purchased with original maturities of three months or less are considered to be cash equivalents.

Restricted Cash

The Company maintains restricted cash related to certain letter of credit guarantees and performance bonds securing performance obligations. The following table provides a reconciliation of cash, cash equivalents, restricted cash included in prepaid expenses and other current assets and restricted cash included in other long term assets reported within the statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows.

	March 31,
	2020				2019				2018
Cash and cash equivalents	$	43,237			$	31,402			$	33,879
Restricted cash included in prepaid expenses and other current assets	2,421				1,624				1,703
Restricted cash included in other long term assets	348				815				745
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	46,006			$	33,841			$	36,327

Amounts shown in restricted cash included in prepaid expenses and other current assets and other long term assets represent those required to be set aside by a contractual agreement, which contain cash deposits pledged as collateral on performance bonds and letters of credit. Amounts shown in restricted cash in other long term assets represent such agreements that require a commitment term longer than one year.

Receivables

The Company's receivables are recorded at cost when earned and represent claims against third parties that will be settled in cash. The carrying value of the Company's receivables, net of allowance for doubtful accounts, represents their estimated net realizable value. If events or changes in circumstances indicate specific receivable balances may be impaired, further consideration is given to the Company's ability to collect those balances and the allowance is adjusted accordingly. The Company has established an allowance for doubtful accounts based upon an analysis of aged receivables. Past-due receivable balances are written-off when the Company's internal collection efforts have been unsuccessful in collecting the amounts due.

The Company's primary base of customers operates in the oil, chemical processing and power generation industries. Although the Company has a concentration of credit risk within these industries, the Company has not experienced significant collection losses on sales to these customers. The Company's foreign receivables are not concentrated within any one geographic segment nor are they subject to any current economic conditions that would subject the Company to unusual risk. The Company does not generally require collateral or other security from customers.

The Company performs credit evaluations of new customers and sometimes requires deposits, prepayments or use of trade letters of credit to mitigate our credit risk. Allowance for doubtful account balances were $834 and $987 as of March 31, 2020 and 2019, respectively. Although we have fully provided for these balances, we continue to pursue collection of these receivables.

The following table summarizes the annual changes in our allowance for doubtful accounts:

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Balance at March 31, 2017				$	518
	Additions to reserve			787
	Write-off of uncollectible accounts			(74		)
Balance at March 31, 2018				1,231
	Additions to reserve			354
	Write-off of uncollectible accounts			(598		)
Balance at March 31, 2019				987
	Additions to reserve			674
	Write-off of uncollectible accounts			(827		)
Balance at March 31, 2020				$	834

Inventories

Inventories, principally raw materials and finished goods, are valued at the lower of cost (weighted average cost) or net realizable value. We write down our inventory for estimated excess or obsolete inventory equal to the difference between the cost of inventory and estimated fair market value based on assumptions of future demand and market conditions. Fair market value is determined quarterly by comparing inventory levels of individual products and components to historical usage rates, current backlog and estimated future sales and by analyzing the age and potential applications of inventory, in order to identify specific products and components of inventory that are judged unlikely to be sold. Our finished goods inventory consists primarily of completed electrical cable that has been manufactured for various heat tracing solutions, as well as various types of immersion, circulation and space heaters for THS. Most of our manufactured product offerings are built to industry standard specifications that have general purpose applications and therefore are sold to a variety of customers in various industries. Some of our products, such as custom orders and ancillary components outsourced from third-party manufacturers, have more specific applications and therefore may be at a higher risk of inventory obsolescence. Inventory is written-off in the period in which the disposal occurs. Actual future write-offs of inventory may differ from estimates and calculations used to determine valuation allowances due to changes in customer demand, customer negotiations, product application, technology shifts and other factors. Historically, inventory obsolescence and potential excess cost adjustments have been within our expectations, and management does not believe that there is a reasonable likelihood that there will be a material change in future estimates or assumptions used to calculate the inventory valuation reserves.

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09 Revenue from Contracts with Customers, which significantly amended the existing revenue recognition requirements and guidance. Effective April 1, 2018, the Company adopted the amended guidance. Please refer to Note 4 "Revenue from Contracts with Customers" for additional information.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Expenditures for renewals and improvements that significantly extend the useful life of an asset are capitalized. Expenditures for maintenance and repairs of assets are charged to operations as incurred when assets are sold or retired, the cost and accumulated depreciation are removed from the accounts and any gain or loss is credited or charged to operations.

Depreciation is computed using the straight-line method over the following lives:

			Useful Lives in Years
Land improvements			15	-	20
Buildings and improvements			10	-	40
Machinery and equipment			3	-	25
Office furniture and equipment			3	-	10
Internally developed software			5	-	7

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Goodwill and Other Intangible Assets

We evaluate goodwill for impairment annually during the fourth quarter of our fiscal year, or more frequently when indicators of impairment are present. We operate as four reportable segments based on four geographic countries or regions. Within these four reportable segments we have six reporting units, each of which is assessed for potential impairments. We perform a qualitative analysis to determine whether it is more likely than not that the fair value of goodwill is less than its carrying amount. Some of the impairment indicators we consider include significant differences between the carrying amount and the estimated fair value of our assets and liabilities; macroeconomic conditions such as a deterioration in general economic condition or limitations on accessing capital; industry and market considerations such as a deterioration in the environment in which we operate and an increased competitive environment; cost factors such as increases in raw materials, labor, or other costs that have a negative effect on earnings and cash flows; overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods; other relevant events such as litigation, changes in management, key personnel, strategy or customers; the testing for recoverability of our long-lived assets and a potential decrease in share price. We evaluate the significance of identified events and circumstances on the basis of the weight of evidence along with how they could affect the relationship between the reporting unit's fair value and carrying amount, including positive mitigating events and circumstances. If we determine it is more likely than not that the fair value of goodwill is less than its carrying amount, then we perform the first step of the two-step goodwill impairment test. In the first step of the goodwill impairment test, the reporting unit's carrying amount (including goodwill) and its fair value are compared. If the estimated fair value of a reporting unit is less than the carrying value, a second step is performed to compute the amount of the impairment by determining an "implied fair value" of goodwill. The determination of the "implied fair value" requires us to allocate the estimated value of the reporting unit to the assets and liabilities of the reporting unit. Any unallocated fair value represents the "implied fair value" of goodwill, which is compared to the corresponding carrying value. If the "implied fair value" is less than the carrying value, an impairment charge will be recorded. In fiscal 2020, 2019 and 2018, the Company determined that no impairment of goodwill existed.

Other intangible assets include indefinite lived intangible assets for which we must also perform an annual test of impairment. The Company's indefinite lived intangible assets consist primarily of trademarks. The fair value of the Company's trademarks is calculated using a "relief from royalty payments" methodology. This approach involves first estimating reasonable royalty rates for each trademark then applying these royalty rates to a net sales stream and discounting the resulting cash flows to determine the fair value. The royalty rate is estimated using both a market and income approach. The market approach relies on the existence of identifiable transactions in the marketplace involving the licensing of trademarks similar to those owned by the Company. The income approach uses a projected pretax profitability rate relevant to the licensed income stream. We believe the use of multiple valuation techniques results in a more accurate indicator of the fair value of each trademark. This fair value is then compared with the carrying value of each trademark. The results of this test during the fourth quarter of our fiscal year indicated that there was no impairment of our indefinite life intangible assets during fiscal 2020, 2019 and 2018.

Debt Issuance Costs

The Company defers the costs associated with debt and financing arrangements. These costs are amortized over the life of the loan or financing as interest expense. Additionally, for any unscheduled principle payments the Company will record additional deferred debt charges on a pro rata basis of the unamortized deferred debt balance at the time of the repayment. When debt or the contract is retired prematurely, the proportionate unamortized deferred issuance costs are expensed as loss on retirement. Deferred debt issuance costs expensed as part of interest expense for fiscal 2020, fiscal 2019 and fiscal 2018 were $1,885, $1,756 and $1,657, respectively.

 

Long-Lived Assets

The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparison of the carrying amounts to the future undiscounted cash flows that the assets are expected to generate. If the long-lived assets are considered impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds the estimated fair value and is recorded in the period the determination was made. In fiscal 2020, 2019 and 2018 the Company determined that no impairment of long-lived assets existed.

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Stock-based Compensation

We account for share-based payments to employees in accordance with ASC 718, Compensation-Stock Compensation, which requires that share-based payments (to the extent they are compensatory) be recognized in our consolidated statements of operations and comprehensive income based on their fair values.

As required by ASC 718, we recognize stock-based compensation expense for share-based payments that are expected to vest. In determining whether an award is expected to vest, we account for forfeitures as they occur, rather than estimate expected forfeitures.

We are also required to determine the fair value of stock-based awards at the grant date. For option awards that are subject to service conditions and/or performance conditions, we estimate the fair values of employee stock options using a Black-Scholes-Merton valuation model. Some of our option grants and awards included a market condition for which we used a Monte Carlo pricing model to establish grant date fair value. These determinations require judgment, including estimating expected volatility. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be impacted.

Income Taxes

We account for income taxes under the asset and liability method that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact our financial position, results of operations or effective tax rate.

Significant judgment is required in determining our worldwide income tax provision. In the ordinary course of a global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of revenue sharing and cost reimbursement arrangements among related entities, the process of identifying items of revenue and expense that qualify for preferential tax treatment, and segregation of foreign and domestic earnings and expenses to avoid double taxation. Although we believe that our estimates are reasonable, the final tax outcome of these matters could be different from that which is reflected in our historical income tax provisions and accruals. Such differences could have a material effect on our income tax provision and net income in the period in which such determination is made.

In estimating future tax consequences, all expected future events are considered other than enactments of changes in tax laws or rates. Valuation allowances are established when necessary to reduce deferred tax assets to amounts which are more likely than not to be realized. We consider future growth, forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which we operate, historical earnings, taxable income in prior years, if carryback is permitted under the law, and prudent and feasible tax planning strategies in determining the need for a valuation allowance. In the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets valuation allowance would be charged to earnings in the period in which we make such a determination, or goodwill would be adjusted at our final determination of the valuation allowance related to an acquisition within the measurement period. If we later determine that it is more likely than not that the net deferred tax assets would be realized, we would reverse the applicable portion of the previously provided valuation allowance as an adjustment to earnings at such time. The amount of income tax we pay is subject to ongoing audits by federal, state and foreign tax authorities, which often result in proposed assessments. Our estimate of the potential outcome for any uncertain tax issue is highly judgmental. We account for these uncertain tax issues pursuant to ASC 740, Income Taxes, which contains a two-step approach to recognizing and measuring uncertain tax positions taken or expected to be taken in a tax return. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given with respect to the final outcome of these matters. We adjust reserves for our uncertain tax positions due to changing facts and circumstances, such as the closing of a tax audit, judicial rulings, refinement of estimates or realization of earnings or deductions that differ from our estimates. To the extent that the final outcome of these matters is different than the amounts recorded, such differences generally will impact our provision for income taxes in the period in which such a determination is made. Our provisions for income taxes include the impact of reserve provisions and changes to reserves that are considered appropriate and also include the related interest and penalties.

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During fiscal 2018, we revised our permanent reinvestment position whereby we expect to repatriate future earnings. Given the Tax Act’s significant changes and potential opportunities to repatriate cash tax free, we have reevaluated our current permanent reinvestment position. Accordingly, we will no longer assert a permanent reinvestment position in most of our foreign subsidiaries. We expect to repatriate certain earnings which will be subject to withholding taxes.  These additional withholding taxes are being recorded as an additional deferred tax liability associated with the basis difference in such jurisdictions. Please see Note 17, "Income Taxes" for more information on the impacts of the Tax Act.

 

Foreign Currency Transactions and Translation

Exchange adjustments resulting from foreign currency transactions are recognized in income as realized. For the Company's non-U.S. dollar functional currency subsidiaries, assets and liabilities of foreign subsidiaries are translated into U.S. dollars using year-end exchange rates. Income and expense items are translated at a weighted average exchange rate prevailing during the year. Adjustments resulting from translation of financial statements are reflected as a separate component of shareholders' equity.

Loss Contingencies

We accrue for probable losses from contingencies on an undiscounted basis, when such costs are considered probable of being incurred and are reasonably estimable. Legal expense related to such matters are expensed as incurred. We periodically evaluate available information, both internal and external, relative to such contingencies and adjust this accrual as necessary. Disclosure of a contingency is required if there is at least a reasonable possibility that a material loss has been incurred. In determining whether a loss should be accrued we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss.

Warranties

The Company offers a standard warranty on product sales in which we will replace a defective product for a period of one year. Warranties on construction projects are negotiated individually, are typically one year in duration, and may include the cost of labor to replace products. Factors that affect the Company's warranty liability include the amount of sales, historical and anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

Research and Development

Research and development expenditures are expensed when incurred and are included in marketing, general and administrative and engineering expenses. Research and development expenses include salaries, direct costs incurred, and building and overhead expenses. The amounts expensed for fiscal 2020, fiscal 2019 and fiscal 2018 were $8,378, $6,289 and $5,240, respectively.

Shipping and Handling Cost

The Company includes shipping and handling as part of cost of sales and freight collections from customers is included as part of sales.

Economic Dependence

As of March 31, 2020 and March 31, 2019, no one customer represented more than 10% of the Company's accounts receivable balance. In fiscal 2020, fiscal 2019 or fiscal 2018, no one customer represented more than 10% of sales.

Recent Accounting Pronouncements

    

Leases- In February 2016, the FASB issued Accounting Standard Update 2016-02 Leases (“ASC Topic 842”), which provides guidance on the recognition, measurement, presentation and disclosure on leases. Under the standard, substantially all leases will be reported on the balance sheet as right-of-use assets and lease liabilities. The new guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. The Company adopted the amended guidance using the modified retrospective method as of April 1, 2019. Please refer to Note 3 "Leases" for further discussion, including the impact the adoption had on our consolidated financial statements.

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Financial Instruments- In June 2016, the FASB issued Accounting Standards Update 2016-13 Financial Instruments- Credit Losses (“ASC Topic 326”), which amends the guidance on the impairment of financial instruments. The standard adds an impairment model, referred to as current expected credit loss, which is based on expected losses rather than incurred losses. The standard applies to most debt instruments, trade receivables, lease receivables, reinsurance receivables, financial guarantees and loan commitments. Under the guidance, companies are required to disclose credit quality indicators disaggregated by year of origination for a five-year period. The new guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. We do not anticipate that this will have a material impact to our consolidated financial statements.

Intangibles- In January 2017, the FASB issued Accounting Standards Update 2017-04 Intangibles - Goodwill and other (“ASC Topic 350”), which amends and simplifies the accounting for goodwill impairment by eliminating step 2 of the goodwill impairment test. Under the amended guidance, goodwill impairment will be measured as the excess of the reporting unit’s carrying value over its fair value, not to exceed the carrying amount of goodwill for that reporting unit. The changes are effective for annual and interim periods beginning after December 15, 2019, and amendments should be applied prospectively. Early adoption is permitted for any impairment tests performed after January 1, 2017. We plan on adopting the amended guidance on April 1, 2020 for the fiscal year ending March 31, 2021. We are currently evaluating the requirements of the standard and have not yet determined its impact on our consolidated financial statements.

We measure fair value based on authoritative accounting guidance, which defines fair value, establishes a framework for measuring fair value and expands on required disclosures regarding fair value measurements.

Inputs are referred to as assumptions that market participants would use in pricing the asset or liability. The uses of inputs in the valuation process are categorized into a three-level fair value hierarchy.

•	Level 1 — uses quoted prices in active markets for identical assets or liabilities we have the ability to access.

•	Level 2 — uses observable inputs other than quoted prices in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

•	Level 3 — uses one or more significant inputs that are unobservable and supported by little or no market activity, and that reflect the use of significant management judgment.

Financial assets and liabilities with carrying amounts approximating fair value include cash, trade accounts receivable, accounts payable, accrued expenses and other current liabilities. The carrying amount of these financial assets and liabilities approximates fair value because of their short maturities. At March 31, 2020 and 2019, no assets or liabilities were valued using Level 3 criteria. 

Information about our short-term debt and long-term debt that is not measured at fair value follows:

	March 31, 2020								March 31, 2019
	Carrying Value				Fair Value				Carrying Value				Fair Value				Valuation Technique
Financial Liabilities
Outstanding principal amount of senior secured credit facility	$	176,000			$	150,480			$	206,500			$	206,500			Level 2 - Market Approach
Outstanding borrowings from revolving line of credit	$	—			$	—			$	11,225			$	11,225			Level 2 - Market Approach

 

At March 31, 2020 and 2019, the fair value of our long-term debt is based on market quotes available for issuance of debt with similar terms. As the quoted price is only available for similar financial assets, the Company concluded the pricing is indirectly observable through dealers and has been classified as Level 2. The Company believes the decline in fair value as of March 31, 2020 is temporary due to the COVID-19 pandemic. The fair value of our revolving line of credit as of March 31, 2019 approximates its carrying value as we pay interest based on the current market rate.

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Acquisition Related Foreign Exchange Option

In connection with the execution of the purchase agreement for the THS acquisition on October 3, 2017, we entered into a combination of option contracts to secure the exchange rate of $200,000 CAD that would be contributed by the Company at closing on October 30, 2017. The options were structured such that the $200,000 CAD would be exchanged for no more than $162,100 and no less than $159,200 USD. At settlement date, Thermon took delivery of $200,000 CAD for $159,200. At closing of the THS acquisition, the Canadian dollar weakened such that the actual spot foreign exchange rate was $155,900. The resulting difference of $3,326 was recognized as realized loss on foreign exchange in fiscal 2018.

Cross Currency Swap

The Company has entered into a long-term cross currency swap to hedge the currency rate fluctuations related to a $54,603 intercompany receivable at March 31, 2020 from our wholly-owned Canadian subsidiary, Thermon Canada Inc., maturing on October 30, 2022. Periodic principal payments are to be settled twice annually with interest payments settled quarterly through the cross currency derivative contract. We do not designate the cross currency swap as a cash flow hedge under ASC 815, Derivatives and Hedging ("ASC 815"). At March 31, 2020, we recorded $2,502 of unrealized mark-to-market gains on the cross-currency swap which is reported as "Other income and expense", in the consolidated statements of operations and comprehensive income. Cross currency swap contracts are measured on a recurring basis at fair value and are classified as Level 2 measurements. Hedge assets in the amount of $4,011 and $1,768 were included in "Other long term assets" in the consolidated balance sheet at March 31, 2020 and 2019, respectively. For the twelve months ended March 31, 2020, the gain on the long-term cross currency swap derivative contract was offset by unrealized losses on the intercompany note of $2,539 for a net loss of $37.

Deferred Compensation Plan Assets

The Company provides a non-qualified deferred compensation plan for certain highly compensated employees where payroll contributions are made by the employees on a pre-tax basis. Included in “Other long-term assets” at March 31, 2020 and March 31, 2019 were $2,849 and $1,557, respectively, of deferred compensation plan assets held by the Company. Deferred compensation plan assets (mutual funds) are measured at fair value on a recurring basis based on quoted market prices in active markets (Level 1). The Company has a corresponding liability to participants of $2,886 and $1,520 included in “Other long-term liabilities” in the consolidated balance sheets at March 31, 2020 and March 31, 2019, respectively. Please refer to Note 13 "Employee Benefits" for further discussion.

Foreign Currency Forward Contracts

We transact business in various foreign currencies and have established a program that primarily utilizes foreign currency forward contracts to offset the risk associated with fluctuations of certain foreign currencies. Under this program, increases or decreases in our foreign currency exposures are offset by gains or losses on the forward contracts to mitigate foreign currency transaction gains or losses. These foreign currency exposures typically arise from intercompany transactions. Our forward contracts generally have terms of 30 days. We do not use forward contracts for trading purposes or designate these forward contracts as hedging instruments pursuant to ASC 815. We adjust the carrying amount of all contracts to their fair value at the end of each reporting period and unrealized gains and losses are included in our results of operations for that period. These gains and losses are intended to offset gains and losses resulting from settlement of payments received from our foreign operations which are settled in U.S. dollars. All outstanding foreign currency forward contracts are marked to market at the end of the period with unrealized gains and losses included in other expense. The fair value is determined by quoted prices from active foreign currency markets (Level 2). The consolidated balance sheets reflect unrealized gains within accounts receivable, net and unrealized losses within accrued liabilities. Our ultimate realized gain or loss with respect to currency fluctuations will depend on the currency exchange rates and other factors in effect as the contracts mature. As of March 31, 2020 and 2019, the notional amounts of forward contracts were as follows:

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Notional amount of foreign exchange forward contracts by currency
	March 31, 2020				March 31, 2019
Russian Ruble	$	1,103			$	—
Euro	500				—
Canadian Dollar	1,500				1,500
South Korean Won	3,500				2,000
Mexican Peso	2,000				—
Australian Dollar	700				900
Great Britain Pound	500				3,000
Total notional amounts	$	9,803			$	7,400

	March 31, 2020								March 31, 2019
	Fair Value								Fair Value
	Assets				Liabilities				Assets				Liabilities
Foreign exchange contract forwards	$	140			$	49			$	8			$	53

In February 2016, the FASB issued ASC Topic 842, which amends the accounting guidance on leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance leases or operating leases as determined pursuant to ASC Topic 842, with classification affecting the pattern of expense recognition in the income statement. The FASB also subsequently issued amendments to the standard, including providing an additional and optional transition method to adopt the new standard, as well as certain practical expedients related to land easements and lessor accounting.

The Company adopted ASC Topic 842 and its amendments and applied the transition provisions as of April 1, 2019. Prior year amounts were not recast under the modified retrospective method and, therefore, prior year amounts are excluded from the leased properties footnote. The Company did not elect the package of practical expedients permitted under the transition guidance, which allows companies to carry forward historical assessments of: (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. In addition, the Company did not elect the hindsight practical expedient to determine the reasonably certain lease term for existing leases. The Company elected a policy of not recording leases on its consolidated balance sheets when the leases have a term of 12 months or less and the Company is not reasonably certain to elect an option to purchase the leased asset. The Company recognizes payments on these leases within selling, administrative and other expenses on a straight-line basis over the lease term. Lease expense related to manufacturing facilities is included in overhead absorption rates and allocated to cost of sales. The Company elected the practical expedient to combine lease and non-lease components for all asset classes.

Description of Leases

The significant majority of our lease obligations are for real property. We lease numerous facilities relating to our operations, primarily for office, manufacturing and warehouse facilities, as well as both long-term and short-term employee housing. Leases for real property have terms ranging from month-to-month to ten years. We also lease various types of

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equipment, including vehicles, office equipment (such as copiers and postage machines), heavy warehouse equipment (such as fork lifts), heavy construction equipment (such as cranes), medium and light construction equipment used for customer project needs (such as pipe threading machines) and mobile offices and other general equipment that is normally associated with an office environment. Equipment leases generally have terms ranging from six months to five years.

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We do not have any significant leases that have not yet commenced but that create significant rights and obligations for us.

We lease temporary power products produced by our Thermon Power Solutions Inc. (formerly known as Sumac Fabrication Co. Ltd.) (“TPS”) division to our customers on a short-term basis. Lease contracts associated with such rental of the temporary power products have historically been month-to-month contracts without purchase options. No lease contracts in which the Company was the lessor have had an initial term in excess of one year. As such, lease revenues for temporary power products recognized under ASC Topic 842 in fiscal 2020 did not materially differ from leases that would have been recorded under ASC Topic 840.

Variable Lease Payments

A majority of our lease agreements include fixed rental payments. A small number of our lease agreements include fixed rental payments that are adjusted periodically for changes in the Consumer Price Index (“CPI”). Payments based on an index or rate such as CPI are included in the lease payments based on the commencement date index or rate. Estimated changes to the index or rate during the lease term are not considered in the determination of the lease payments.

Options to Extend or Terminate Leases

Most of our real property leases include early termination options and/or one or more options to renew, with renewal terms that can extend the lease term for an additional one to five years or longer. The exercise of lease termination and renewal options is at our sole discretion. If it is reasonably certain that we will exercise such renewal options, the periods covered by such renewal options are included in the lease term and are recognized as part of our ROU assets and lease liabilities. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

Discount Rate

The Company's leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular currency environment. A large concentration of the Company's operating lease liabilities are attributed to our United States and Latin America operations. Many of our Europe, Middle East and Africa (“EMEA”) operations and Asia-Pacific operations borrow funds from the debt facilities maintained by our U.S. operating subsidiary and establish intercompany balances to account for these loans. This practice is due to the more preferential rates available to our U.S. operating subsidiary and/or the ease with which funds can be drawn from the debt facilities already established within the United States. With this in mind, the Company has utilized its U.S. credit facility rate as the worldwide incremental borrowing rate. The Company used incremental borrowing rates as of April 1, 2019 for operating leases that commenced prior to April 1, 2019 to establish the lease liabilities. For operating leases that commenced during the year ended March 31, 2020, rates applicable at or close to the time of the inception of the lease were used to establish the new lease's ROU liabilities.

Lease Term and Discount Rate		March 31, 2020
Weighted average remaining lease term
Operating		6.2
Finance		3.4
Weighted average discount rate
Operating		4.82	%
Finance		6.98	%

Supplemental balance sheet information related to leases was as follows:

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Assets		Classification		March 31, 2020
Operating		Operating lease right-of-use assets		$	16,637
Finance		Property, plant and equipment		695
Total right-of-use assets				$	17,332
Liabilities
Current
Operating		Lease liabilities		$	3,352
Finance		Lease liabilities		201
Non-current
Operating		Non-current lease liabilities		15,060
Finance		Non-current lease liabilities		511
Total lease liabilities				$	19,124

Supplemental statement of operations information related to leases was as follows:

Lease expense		Classification		Twelve Months Ended March 31, 2020
Operating lease expense		Marketing, general and administrative and engineering		$	3,835
Finance lease expense:
Amortization of ROU assets		Marketing, general and administrative and engineering		266
Interest expense on finance lease liabilities		Interest expense		41
Short-term lease expense		Marketing, general and administrative and engineering		1,117
Net lease expense				$	5,259

Supplemental statement of cash flows information related to leases was as follows:

Cash paid for amounts included in the measurement of lease liabilities		Twelve Months Ended March 31, 2020
Operating cash used for operating leases		$	3,523
Operating cash flows used for finance leases		41
Financing cash flows used for finance leases		259

Future lease payments under non-cancellable operating leases as of March 31, 2020 were as follows:

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Future Lease Payments		Operating Leases				Finance Leases
Twelve months ending March 31,
2020		$	4,300			$	241
2021		3,957				198
2022		3,491				150
2023		2,263				127
2024		1,811				78
Thereafter		6,150				—
Total lease payments		$	21,972			$	794
Less imputed interest		(3,559		)		(83		)
Total lease liability		$	18,413			$	711

On April 1, 2018, we adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ("ASC Topic 606") using the modified retrospective method and applying ASC Topic 606 to all revenue contracts with customers which were not completed as of the date of adoption. Results for reporting periods beginning after April 1, 2018 are presented under ASC Topic 606. In accordance with the modified retrospective approach, prior period amounts were not adjusted and are reported under Accounting Standards Codification Topic 605, Revenue Recognition (“ASC Topic 605”). As a result of the adoption, the cumulative impact to our retained earnings at April 1, 2018 was immaterial. We expect the impact of the adoption of the new standard to continue to be immaterial to revenues and net income on an ongoing basis.

The core principle of the new standard is to recognize revenue that reflects the consideration the Company expects to receive for goods or services when or as the promised goods or services are transferred to customers. ASC Topic 606 requires more judgment than previous guidance, as management will need to consider the terms of the contract and all relevant facts and circumstances when applying the revenue recognition standard. Management performs the following five steps when applying the revenue recognition standard: (i) identify each contract with customers, (ii) identify each performance obligation in the contracts with customers, (iii) estimate the transaction price (including any variable consideration), (iv) allocate the transaction price to each performance obligation and (v) recognize revenue as each performance obligation is satisfied.

Description of Product and Service Offerings and Revenue Recognition Policies

We principally provide a (i) suite of products (heating units, heating cables, tubing bundles and control systems) and (ii) services including design optimization, engineering, installation and maintenance services required to deliver comprehensive solutions to complex projects. The performance obligations associated with our products sales are generally recognized at a point in time. Where products and services are provided together under a time and materials contract, the performance obligations are satisfied over time. We also provide fixed-fee turnkey solutions consisting of products and services under which the related performance obligations are satisfied over time.

In addition, we offer temporary power products that are designed to provide a safe and efficient means of supplying temporary electrical power distribution and lighting at energy infrastructure facilities for new construction and during maintenance and turnaround projects at operating facilities. Revenues associated with the rental of the temporary power products have historically been less than 5% of our total revenues and are recognized under ASC Topic 840, "Leases".

Revenue is recognized when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to receive in exchange for transferring such goods or providing such services. We account for a contract when a customer provides us with a firm purchase order or other contract that identifies the goods or services to be provided, the payment terms for those services, and when collectability of the consideration due is probable. Generally, our payment terms do not exceed 30 days.

Performance Obligations

A performance obligation is a promise to provide the customer with a good or service. At contract inception, the Company will assess the goods or services promised in the contract with a customer and shall identify, as a performance obligation, each promise to transfer to the customer either: (i) a good or service (or a bundle of goods or services) or (ii) a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer. For contracts with multiple performance obligations, standalone selling price is generally readily observable.

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Revenue from products transferred to customers at a point in time is recognized when obligations under the terms of the contract with the customer are satisfied; generally this occurs with the transfer of control upon shipment. Revenue from products transferred to customers at a point in time accounted for approximately 59.6% and 60.0% of revenue for the fiscal year ended March 31, 2020 and 2019, respectively.

    

Our revenues that are recognized over time include (i) products and services which are billed on a time and materials basis, and (ii) fixed fee contracts for complex turnkey solutions. Revenue from products and services transferred to customers over time accounted for approximately 40.4% and 40.0% of revenue for the fiscal year ended March 31, 2020 and March 31, 2019, respectively.

For our time and materials service contracts, we recognize revenues as the products and services are provided over the term of the contract and have determined that the stated rate for installation services and products is representative of the stand-alone selling price for those services and products.

  

Our turnkey projects, or fixed fee projects, offer our customers a comprehensive solution for heat tracing from the initial planning stage through engineering/design, manufacture, installation and final proof-of-performance and acceptance testing. Turnkey services also include project planning, product supply, system integration, commissioning and on-going maintenance. Turnkey solutions, containing multiple deliverables, are customer specific and do not have an alternative use and present an unconditional right to payment, and thus are treated as a single performance obligation with revenues recognized over time as work progresses.

For revenue recognized under fixed fee turnkey contracts, we measure the costs incurred that contribute towards the satisfaction of our performance obligation as a percentage of the total cost of production (the “cost-to-cost method”), and we recognize a proportionate amount of contract revenue, as the cost-to-cost method appropriately depicts performance towards satisfaction of the performance obligation. Changes to the original cost amount may be required during the life of the contract and such estimates are reviewed on a regular basis. Sales and gross profits are adjusted using the cumulative catch-up method for revisions in estimated contract costs. Reviews of estimates have not resulted in significant adjustments to our results of operations.

    

At March 31, 2020, revenues associated with our open performance obligations totaled $105,445, representing our combined backlog and deferred revenue. Within this amount, approximately $18,631 will be earned as revenue in excess of one year. We expect to recognize the remaining revenues associated with unsatisfied or partially satisfied performance obligations within twelve months.

    

Pricing and Sales Incentives

    

Pricing is established at or prior to the time of sale with our customers and we record sales at the agreed-upon net selling price. Generally, we do not enter into sales contracts with customers that offer sales discounts or incentives.

Optional Exemptions, Practical Expedients and Policy Elections

We expense the incremental costs of obtaining a contract when incurred because the amortization period would be less than one year.

    

The Company has elected to treat shipping and handling activities as a cost of fulfillment rather than a separate performance obligation.

 

The Company has elected to exclude all sales and other similar taxes from the transaction price. Accordingly, the Company presents all collections from customers for sales and other similar taxes on a net basis, rather than having to assess whether the Company is acting as an agent or a principal in each taxing jurisdiction.

 

The Company adopted ASC Topic 606 as of April 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption. For contracts that were modified before the effective date, the Company utilized the practical expedient to consider the aggregate effect of all modifications when identifying performance obligations and allocating transaction price.

Contract Assets and Liabilities

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Contract assets and liabilities are presented on our consolidated balance sheet. Contract assets consist of unbilled amounts resulting from sales under long-term contracts when the cost-to-cost method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer. In addition, contract assets contain labor and material costs incurred under our time and material service contracts that have not been billed to the customer. Contract liabilities represent deferred revenue from advanced customer payments or billings in excess of costs incurred or revenue earned. The Company invoices customers pursuant to the terms of their related contract. Invoiced amounts are applied to individual contracts and an associated amount is either classified as a contract asset or contract liability depending on whether the revenue associated with the amounts billed had been earned (contract asset) or not (contract liability).

    

As of March 31, 2020 and 2019, contract assets were $10,194 and $26,454, respectively. The $16,260 decrease in contract assets from March 31, 2019 to March 31, 2020 was attributable to the completion of certain large projects in the United States and Latin America resulting in contract assets being invoiced to the customer. There were no impairment losses recognized on our contract assets for the twelve months ended March 31, 2020 and 2019. As of March 31, 2020 and 2019, contract liabilities were $4,538 and $6,814, respectively. The majority of contract liabilities at March 31, 2019 was recognized in revenue as of March 31, 2020.    

    

Disaggregation of Revenue

We disaggregate our revenue from contracts with customers by geographic location, revenues recognized at point in time and revenues recognized over time, as we believe these best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.

Disaggregation of revenues from contracts with customers for fiscal 2020 and 2019 are as follows:

		Fiscal Year Ended March 31, 2020												Fiscal Year Ended March 31, 2019
		Revenues recognized at point in time				Revenues recognized over time				Total				Revenues recognized at point in time				Revenues recognized over time				Total
United States and Latin America		$	72,334			$	83,131			$	155,465			$	71,865			$	93,783			$	165,648
Canada		106,577				21,787				128,364				102,997				24,395				127,392
Europe, Middle East and Africa		31,028				22,734				53,762				46,210				31,298				77,508
Asia-Pacific		18,558				27,337				45,895				26,534				15,560				42,094
Total revenues		$	228,497			$	154,989			$	383,486			$	247,606			$	165,036			$	412,642

Basic net income per common share is computed by dividing net income available to Thermon Group Holdings, Inc. by the weighted average number of common shares outstanding during each period. Diluted net income per common share is computed by dividing net income available to Thermon Group Holdings, Inc. by the weighted average number of common shares and common share equivalents outstanding (if dilutive) during each period. The number of common share equivalents, which includes options and both restricted and performance stock units, is computed using the treasury stock method. With regard to the performance stock units, we assumed that the associated performance targets will be met at the target level of performance for purposes of calculating diluted net income per common share.

The reconciliations of the denominators used to calculate basic net income per common share and diluted net income per common share for fiscal 2020, fiscal 2019, and fiscal 2018, respectively, is as follows:

		Year Ended March 31, 2020				Year Ended March 31, 2019				Year Ended March 31, 2018
Basic net income per common share
Net income available to Thermon Group Holdings, Inc.		$	11,938			$	22,756			$	11,913
Weighted-average common shares outstanding		32,760,327				32,568,541				32,423,581
Basic net income per common share		$	0.36			$	0.70			$	0.37

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		Year Ended March 31, 2020				Year Ended March 31, 2019				Year Ended March 31, 2018
Diluted net income per common share
Net income available to Thermon Group Holdings, Inc.		$	11,938			$	22,756			$	11,913
Weighted-average common shares outstanding		32,760,327				32,568,541				32,423,581
Common share equivalents:
Stock options issued		134,777				235,802				218,693
Restricted and performance stock units issued		253,566				249,961				155,077
Weighted average shares outstanding – dilutive		33,148,670				33,054,304				32,797,351
Diluted net income per common share		$	0.36			$	0.69			$	0.36

For the year ended March 31, 2018, 76,205 equity awards were not included in the calculation of diluted net income per common share since they would have had an anti-dilutive effect.

Inventories consisted of the following at March 31:

	2020				2019
Raw materials	$	31,300			$	32,892
Work in process	5,317				5,696
Finished goods	25,701				28,501
	62,318				67,089
Valuation reserves	(2,045		)		(2,199		)
Inventories, net	$	60,273			$	64,890

 

The following table summarizes the annual changes in our valuation reserve accounts:

Balance at March 31, 2017			$	1,329
	Additions in reserve		721
	Charged to reserve		27
Balance at March 31, 2018			2,077
	Additions in reserve		166
	Charged to reserve		(44		)
Balance at March 31, 2019			2,199
	Additions in reserve		172
	Charged to reserve		(326		)
Balance at March 31, 2020			$	2,045

Property, plant and equipment consisted of the following at March 31:

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		2020				2019*
Land, buildings and improvements		$	53,060			$	54,294
Machinery and equipment		38,880				28,567
Office furniture and equipment		15,587				22,596
Internally developed software		5,793				4,917
Construction in progress		2,772				2,995
Property, plant and equipment at cost		116,092				113,369
Accumulated depreciation		(43,550		)		(38,414		)
Property, plant and equipment, net		$	72,542			$	74,955

*Certain reclassifications have been made to the prior year amounts to conform to the current year presentation. These reclassifications had no effect on the reported results in the consolidated balance sheets or statements of cash flows.

Depreciation expense was $10,502, $9,194 and $7,962, in fiscal 2020, fiscal 2019, and fiscal 2018, respectively.

Included within depreciation expense was amortization of internally developed software of $790, $479, and $495, in fiscal 2020, fiscal 2019 and fiscal 2018, respectively.

The carrying amount of goodwill for all reporting segments as of March 31, 2020, 2019 and 2018 is as follows:

		United States				Canada				Europe				Asia				Total
Balance as of March 31, 2018		$	52,016			$	128,767			$	21,159			$	8,624			$	210,566
Allocation of goodwill		10,709				(10,709		)						—				—
Purchase price adjustment		—				481				—				—				481
Foreign currency translation impact		—				(4,157		)		(1,895		)		—				(6,052		)
Balance as of March 31, 2019		$	62,725			$	114,382			$	19,264			$	8,624			$	204,995
Foreign currency translation impact		—				(6,643		)		(374		)		—				(7,017		)
Balance as of March 31, 2020		$	62,725			$	107,739			$	18,890			$	8,624			$	197,978

We consider the recent decline in our business, which management believes is attributable to lower oil prices as a result of the COVID-19 pandemic, to be an indicator of potential asset impairments in our reporting units. In the fourth quarter of fiscal 2020, we performed our annual goodwill and tangible impairment assessments including our indefinite life trademarks. We analyzed our reporting units utilizing the income approach, based on discounted future cash flows, which are derived from internal forecasts and economic expectations, and the market approach, based on market multiples of guideline public companies. The impairment test for indefinite life trademarks utilized a relief from royalty analysis based on the cash flow streams attributable to the Thermon trademark. Based on the goodwill and assets impairment assessment, the estimated fair value of our reporting units exceeded the carrying value. As such, there was no impairment of goodwill, assets or our indefinite life trademarks as of the respective reporting periods. The most significant inputs in the Company's impairment test are the projected financial information, the weighted average cost of capital and market multiples for similar transactions. If the overall economic conditions, energy market or factors specific to the Company deteriorate further, it could negatively impact the Company's future impairment tests. We will continue to monitor our reporting unit's goodwill and asset valuations and test for potential impairments until the overall market conditions improve.

Our total intangible assets at March 31, 2020, and 2019 consisted of the following:

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		Gross Carrying Amount at March 31, 2020				Accumulated Amortization				Net Carrying Amount at March 31, 2020				Gross Carrying Amount at March 31, 2019				Accumulated Amortization				Net Carrying Amount at March 31, 2019
Products		$	58,722			$	14,193			$	44,529			$	62,343			$	8,832			$	53,511
Trademarks		43,865				1,273				42,592				44,819				1,052				43,767
Developed technology		9,564				4,758				4,806				9,854				4,464				5,390
Customer relationships		105,912				93,729				12,183				110,802				87,319				23,483
Certifications		436				—				436				445				—				445
Other		—				—				—				5,742				5,742				—
Total		$	218,499			$	113,953			$	104,546			$	234,005			$	107,409			$	126,596

Trademarks and certifications have indefinite lives with the exception of IPI and Unitemp trademarks, which have gross carrying amounts of $1,820 and $314, respectively, that are subject to amortization. The useful life of the trademarks amortized is estimated at 8 years. Developed technology, products, customer relationships and other intangible assets have estimated lives of 20 years, 10 years, 10 years and 6 years, respectively. The weighted average useful life for the group is 12 years. Customer relationships intangibles associated with THS, with a gross carrying amount of $58,722, have a useful life of 17 years. Portions of intangible assets are valued in foreign currencies; accordingly changes in indefinite life intangible assets at March 31, 2020 and 2019 were the result of foreign currency translation adjustments.

The Company recorded amortization expense of $17,773, $20,771, and $16,458 in fiscal 2020, fiscal 2019 and fiscal 2018, respectively for intangible assets. Annual amortization of intangible assets for the next five years and thereafter will approximate the following:

2021		$	8,952
2022		7,949
2023		7,946
2024		7,266
2025		6,941
Thereafter		23,327
Total		$	62,381

Accrued current liabilities consisted of the following:

	March 31, 2020				March 31, 2019
Accrued employee compensation and related expenses	$	12,542			$	18,109
Accrued interest	782				1,172
Customer prepayment	357				783
Warranty reserve	477				365
Professional fees	2,086				2,326
Sales tax payable	2,423				2,185
Other	5,090				2,908
Total accrued current liabilities	$	23,757			$	27,848

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Under the Company’s senior secured revolving credit facility described below in Note 11, “Long-Term Debt,” the Company had no outstanding borrowings at March 31, 2020 and $11,225 in outstanding borrowings at March 31, 2019.

Long-term debt consisted of the following:

	March 31, 2020				March 31, 2019
Variable Rate Term Loan, due October 2024, net of deferred debt issuance costs and debt discounts of $4,447 and $6,271 as of March 31, 2020 and 2019, respectively	$	171,553			$	200,229
Less current portion	(2,500		)		(2,500		)
Total	$	169,053			$	197,729

 

Senior Secured Credit Facility

On October 30, 2017, the Company, as a credit party and a guarantor, Thermon Holding Corp. (the “US Borrower”) and Thermon Canada Inc. (the “Canadian Borrower”), as borrowers, entered into a credit agreement with several banks and other financial institutions or entities from time to time party thereto (the “Lenders”) and JPMorgan Chase Bank, N.A. as administrative agent (the “Agent”), which provides for a $250,000 seven-year term loan B facility made available to the US Borrower and a $60,000 five-year senior secured revolving credit facility made available to the US Borrower and the Canadian Borrower, which we refer to collectively as our “credit facility”. The proceeds of the term loan B were used to (1) pay in full $70,875 principal and interest on a previously issued term loan due April 2019; (2) repay $6,000 in unpaid principal and interest on the US Borrower's revolving line of credit; (3) to fund approximately $201,900 CAD of the purchase price of the acquisition of THS and certain related real estate assets for approximately $164,900; and (4) pay certain transaction fees and expenses in connection with the THS transaction and the credit facility.

Interest rates and fees. The US Borrower will have the option to pay interest on the term loan B facility at a base rate, plus an applicable margin, or at a rate based on LIBOR, (subject to a floor of 1.00%), plus an applicable margin. The applicable margin for base rate loans is 275 basis points and the applicable margin for LIBOR loans is 375 basis points. The US Borrower may borrow revolving loans in US dollars and the Canadian Borrower may also borrow revolving loans in Canadian dollars. Borrowings under the revolving credit facility (a) made in US dollars will bear interest at a rate equal to a base rate, plus an applicable margin of 225 basis points or at a rate based on LIBOR, plus an applicable margin of 325 basis points and (b) made in Canadian dollars will bear interest at a rate equal to a Canadian base rate, plus an applicable margin of 225 basis points or at a rate based on Canadian Dollar Offered Rate, plus an applicable margin of 325 basis points; provided, that since the completion of the fiscal quarter ended March 31, 2018, the applicable margins in each case will be determined based on a leverage-based performance grid, as set forth in the credit agreement. In addition to paying interest on outstanding principal under the revolving credit facility, the US Borrower is required to pay a commitment fee in respect of unutilized revolving commitments of 0.50% per annum based on a leverage-based performance grid.

    Maturity and repayment. The revolving credit facility terminates on October 28, 2022. The scheduled maturity date of the term loan facility is October 30, 2024. Commencing April 1, 2018, the term loan will amortize in equal quarterly installments of 0.25% of the $250,000 term loan, with the payment of the balance at maturity. The US Borrower will be able to voluntarily prepay the principal of the term loan without penalty or premium (subject to breakage fees) at any time in whole or in part; provided that for the first six months after the October 30, 2017 closing date, the US Borrower is required to pay a 1% premium for prepayments of the term loan with the proceeds of certain re‑pricing transactions. The US Borrower is required to repay the term loan with certain asset sale and insurance proceeds, certain debt proceeds and, commencing for the fiscal year ended March 31, 2019, 50% of excess cash flow (reducing to 25% if the Company’s leverage ratio is less than 4.0 to 1.0 but greater than or equal to 3.5 to 1.0 and 0% if the Company’s leverage ratio is less than 3.5 to 1.0). The remaining balance will be due at maturity of the term loan B facility on October 30, 2024.

Accordion. The credit facility allows for incremental term loans and incremental revolving commitments in an amount not to exceed $30,000 and an unlimited additional amount that would not cause the consolidated secured leverage ratio to exceed 4.0 to 1.0 (or, if less, the maximum consolidated leverage ratio permitted by the revolving credit facility on such date).

At March 31, 2020, we had no outstanding borrowings under our revolving credit facility for the Canadian Borrower line of credit or for the US Borrower line of credit. As of March 31, 2020, we had $56,012 of available borrowing capacity under our revolving credit facility after taking into account the borrowing base, outstanding borrowings and letters of credit outstanding. The variable rate term loan bears interest at the LIBOR rate plus an applicable margin dictated by our leverage ratio (as described above). The interest rate on the variable rate term loan on March 31, 2020 was 5.33%.

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Guarantees; security. The term loan is guaranteed by the Company and all of the Company's current and future wholly-owned domestic material subsidiaries (the “US Subsidiary Guarantors”), subject to certain exceptions. Obligations of the US Borrower under the revolving credit facility are guaranteed by the Company and the US Subsidiary Guarantors. The obligations of the Canadian Borrower under the revolving credit facility are guaranteed by the Company, the US Borrower, the US Subsidiary Guarantors and each of the wholly owned Canadian material subsidiaries of the Canadian Borrower, subject to certain exceptions. The term loan and the obligations of the US Borrower under the revolving credit facility are secured by a first lien on all of the Company’s assets and the assets of the US Subsidiary Guarantors, including 100% of the capital stock of the US Subsidiary Guarantors and 65% of the capital stock of the first tier material foreign subsidiaries of the Company, the US Borrower and the US Subsidiary Guarantors, subject to certain exceptions. The obligations of the Canadian Borrower under the revolving credit facility are secured by a first lien on all of the Company's assets, the US Subsidiary Guarantors' assets, the Canadian Borrower’s assets and the assets of the material Canadian subsidiaries of the Canadian Borrower, including 100% of the capital stock of the Canadian Borrower’s material Canadian subsidiaries.

Financial covenants. The term loan is not subject to any financial covenants. The revolving credit facility requires the Company, on a consolidated basis, to maintain certain financial covenant ratios. The Company must maintain a consolidated leverage ratio on the last day of the following periods: 4.5:1.0 for December 31, 2019 through September 30, 2020; and 3.75:1.0 for December 31, 2020 and each fiscal quarter thereafter. In addition, on the last day of any period of four fiscal quarters, the Company must maintain a consolidated fixed charge coverage ratio of not less than 1.25:1.0. As of March 31, 2020, we were in compliance with all financial covenants of the credit facility.

Restrictive covenants.  The credit agreement governing our facility contains various restrictive covenants that, among other things, restrict or limit our ability to (subject to certain negotiated exceptions): incur additional indebtedness; grant liens; make fundamental changes; sell assets; make restricted payments including cash dividends to shareholders; enter into sales and leasebacks; make investments; prepay certain indebtedness; enter into transactions with affiliates; and enter into restrictive agreements.

Maturities of long-term debt principal payments are as follows for the fiscal years ended March 31:

2021		$	2,500
2022		2,500
2023		2,500
2024		2,500
2025		166,000
Total		$	176,000

In connection with the TPS transaction, one of the former TPS principals (the "Minority Shareholder") retained 25% of the ownership of the entities holding the TPS business unit. During the fiscal year ended March 31, 2017, this individual, together with the two other former principals of TPS, were paid $5,805 in the aggregate in full satisfaction of the Company's obligations under the $5,905 non-interest bearing performance-based note issued in connection with the TPS transaction.

On April 2, 2018, the Minority Shareholder provided the Company notice that he was exercising his option to sell one-half (12.5%) of his remaining equity interest in the entities holding the TPS business unit to the Company, and such sale was completed and effective as of July 20, 2018. The terms of the April 2015 TPS purchase agreement prescribed a valuation formula for such a sale based on TPS's financial results for the 12 months ended March 31, 2018. During the first quarter of the fiscal year ended March 31, 2019, the Company paid $5,665 to purchase the 12.5% non-controlling interest.

Similarly, on April 2, 2019, the Minority Shareholder provided the Company notice in order to exercise his option to sell the entirety of his remaining equity interest (12.5% of the entities holding the TPS business unit) to the Company. The terms of the April 2015 TPS purchase agreement prescribed a valuation formula for such a sale based on TPS’s financial results for the fiscal year ended March 31, 2019. The Company paid $4,508 to purchase the remaining 12.5% non-controlling interest on August 1, 2019.

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The Company has defined contribution plans covering substantially all domestic employees and certain foreign subsidiary employees who meet certain service and eligibility requirements. Participant benefits are 100% vested upon participation. The Company matches employee contributions, limited to 50% of the first 6% of each employee's salary contributed. The Company's matching contributions to defined contribution plans on a consolidated basis were approximately $2,607, $2,315, and $2,119 in fiscal 2020, fiscal 2019, and fiscal 2018, respectively.

 

The Company has an incentive compensation program to provide employees with incentive pay based on the Company's ability to achieve certain profitability objectives. The Company recorded approximately $3,104, $9,885, and $6,656 for incentive compensation earned in fiscal 2020, fiscal 2019, and fiscal 2018, respectively.

    

Thermon Europe B.V., our European subsidiary, maintained a defined benefit pension plans for qualifying employees located in The Netherlands. The Company is currently under contract with an insurance company to fund a defined benefit (average pay) pension plan to provide for estimated post-retirement pension income. As of March 31, 2018, the plan had an estimated net benefit obligation of $2,185, which is included in non-current liabilities. The obligation is based on an actuarial calculation of the pension obligation for the participants. Effective January 1, 2019, the plan was terminated and the Company purchased replacement annuity contracts transferring the obligation. As such, the Company's net benefit obligation (inclusive of actuarial gains or losses previously deferred in other comprehensive income and other minor amounts related to the pension plan) of $1,840 as of December 31, 2018 was recorded as income at the settlement date into Marketing, general and administrative and engineering expense on the consolidated statements of operations and comprehensive income.    

The Company provides a non-qualified deferred compensation plan for certain highly compensated employees where payroll contributions are made by the employees on a pre-tax basis. Included in “Other long-term assets” in the consolidated balance sheets at March 31, 2020 and 2019 were $2,849 and $1,557, respectively, of deferred compensation plan assets held by the Company. Deferred compensation plan assets (mutual funds) are measured at fair value on a recurring basis based on quoted market prices in active markets (Level 1). The Company has a corresponding liability to participants of $2,886 and $1,520 included in “Other long-term liabilities” in the consolidated balance sheet at March 31, 2020 and 2019, respectively. Deferred compensation expense (income) included in marketing, general and administrative and engineering were ($387) and $21 for the twelve months ended March 31, 2020 and 2019, respectively. Expenses and income from our deferred compensation plan were offset by unrealized gains and losses for the deferred compensation plan included in other expense on our consolidated statements of comprehensive income. Our unrealized losses on investments were losses of $498 and $50 for the twelve months ended March 31, 2020 and 2019, respectively.

At March 31, 2020, the Company had in place letter of credit guarantees and performance bonds securing performance obligations of the Company. These arrangements totaled approximately $10,416. Of this amount, $2,769 is secured by cash deposits at the Company's financial institutions and an additional $3,988 represents a reduction of the available amount of the Company's short term and long term revolving lines of credit. Included in prepaid expenses and other current assets at March 31, 2020 and 2019, was approximately $2,769 and $2,439, respectively, of cash deposits pledged as collateral on performance bonds and letters of credit.

The Company has entered into information technology service agreements with several vendors. The service fees expense amounted to $2,679, $3,809, and $3,439 in fiscal 2020, fiscal 2019 and fiscal 2018, respectively. The future annual service fees under the service agreements are as follows for the fiscal years ended March 31:

2021		$	1,007
2022		93
		$	1,100

We are involved in various legal and administrative proceedings that arise from time to time in the ordinary course of doing business. Some of these proceedings may result in fines, penalties or judgments being assessed against us, which may adversely affect our financial results. In addition, from time to time, we are involved in various disputes, which may or may not be settled prior to legal proceedings being instituted and which may result in losses in excess of accrued liabilities, if any, relating to such unresolved disputes. As of March 31, 2020, management believes that adequate reserves have been established for any probable and reasonably estimable losses. Expenses related to litigation reduce operating income. We do not believe

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that the outcome of any of these proceedings or disputes would have a significant adverse effect on our financial position, long-term results of operations, or cash flows. It is possible, however, that charges related to these matters could be significant to our results of operations or cash flows in any one accounting period. 

As of March 31, 2020, the Company has accrued $3,900 as estimated additional cost related to the operational execution of projects.

In addition to the legal proceedings described above, in January 2020, the Company received service of process in a class action application in the Province of Quebec, Canada related to certain heating elements previously manufactured by THS and incorporated into portable construction heaters sold by certain manufacturers. The Company believes this claim is without merit and intends to vigorously defend itself against the claim. The Company continues to evaluate the facts and circumstances of this claim; however, due to the current uncertainty of the basis for the claim, the Company is unable to establish an amount of an accrual or reasonably estimate the possible loss or range of loss for this claim at this time.

Changes in the Company's warranty reserve are as follows

Balance at March 31, 2017			$	300
	Reserve for warranties issued during the period		281
	Settlements made during the period		(281		)
Balance at March 31, 2018			$	300
	Reserve for warranties issued during the period		300
	Settlements made during the period		(235		)
Balance at March 31, 2019			$	365
	Reserve for warranties issued during the period		160
	Settlements made during the period		(48		)
Balance at March 31, 2020			$	477

Since the completion of the CHS Transactions on April 30, 2010, the Board of Directors has adopted and the shareholders have approved two stock option award plans. The 2010 Thermon Group Holdings, Inc. Restricted Stock and Stock Option Plans ("2010 Plan") was approved on July 28, 2010. The plan authorized the issuance of 2,767,171 stock options or restricted shares (on a post stock split basis). On April 8, 2011, the Board of Directors approved the Thermon Group Holdings, Inc. 2011 Long-Term Incentive Plan ("2011 LTIP"). The 2011 LTIP made available 2,893,341 shares of the Company's common stock that may be awarded to employees, directors or non-employee contractor's compensation in the form of stock options or restricted stock awards. Collectively, the 2010 Plan and the 2011 LTIP are referred to as the "Stock Plans." The Company does not hold any shares of its own stock as treasury shares. Accordingly, the vesting of restricted stock units and performance stock units and the exercise of stock options result in the issuance of additional new shares of the Company's stock.

Unvested options outstanding are scheduled to vest over five years with 20% vesting on the anniversary date of the grant each year. Stock options must be exercised within 10 years from date of grant. Stock options were issued with an exercise price which was equal to the market price of our common stock at the grant date. We account for forfeitures as they incur, rather than estimate expected forfeitures.

Stock Options

A summary of stock option activity under our Stock Plans for fiscal 2020, fiscal 2019 and fiscal 2018 are as follows:

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			Options Outstanding
			Number of Shares			Weighted Average Exercise Price
Balance at March 31, 2017			411,939			$	8.94
	Exercised		(42,956	)		7.00
	Forfeited		(1,412	)		19.83
Balance at March 31, 2018			367,571			$	9.12
	Exercised		(37,906	)		10.44
	Forfeited		(279	)		21.52
Balance at March 31, 2019			329,386			$	8.96
	Exercised		(185,792	)		6.24
	Forfeited		(4,109	)		21.40
Balance at March 31, 2020			139,485			$	12.30

For fiscal 2020, fiscal 2019 and fiscal 2018 the intrinsic value of stock option exercises was $3,240, $555, and $648, respectively. During fiscal 2020, 26,730 of options exercised will be transacted in the first quarter of fiscal year ending March 31, 2021.

			Unvested Options
			Number of Shares				Weighted Average Grant Date Fair Value
Balance at March 31, 2017			$	37,829			$	8.86
	Vested		(17,417		)		6.93
	Forfeited		(1,412		)		19.83
Balance at March 31, 2018			$	19,000			$	5.89
	Vested		(9,500		)		5.89
Balance at March 31, 2019			$	9,500			$	5.89
	Vested		(9,500		)		5.89
Balance at March 31, 2020			$	—			$	—

For fiscal 2020, fiscal 2019 and fiscal 2018, we recorded stock based compensation of $4,960, $4,148, and $3,519, respectively. As of March 31, 2020, there was no unrecognized expense related to non-vested stock option awards.

The following table summarizes information about stock options outstanding as of March 31, 2020:

		Options Outstanding													Options Vested and Exercisable
Exercise Price		Number Outstanding			Weighted Average Contractual Life (Years)		Weighted Average Exercise Price				Aggregate Intrinsic Value at March 31, 2020				Number Vested and Exercisable			Weighted Average Contractual Life (Years)		Weighted Average Exercise Price				Aggregate Intrinsic Value at March 31, 2020
$5.20		53,825			0.55		$	5.20			$	531,253			53,825			0.55		$	5.20			$	531,253
$9.82		6,177			0.91		9.82				32,429				6,177			0.91		9.82				32,429
$12.00		29,560			1.09		12.00				90,499				29,560			1.09		12.00				90,499
$19.64		28,499			6.76		19.64				(130,240		)		28,499			6.76		19.64				(130,240		)
$21.52		21,424			2.34		21.52				(138,185		)		21,424			2.34		21.52				(138,185		)
$5.20-$21.52		139,485			2.22		$	12.30			$	385,756			139,485			2.22		$	12.30			$	385,756

The aggregate intrinsic value in the preceding table represents the total intrinsic value based on our closing stock price of $15.07 as of March 31, 2020, which would have been received by the option holders had all option holders exercised as of that date.

Stock options are valued by using a Black-Scholes-Merton option pricing model. We calculate the value of our stock option awards when they are granted. Accordingly, we update our valuation assumptions for volatility and the risk free interest

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rate each quarter that option grants are awarded. Annually, we prepare an analysis of the historical activity within our option plans as well as the demographic characteristics of the grantees of options within our stock option plan to determine the estimated life of the grants and possible ranges of estimated forfeiture. The expected life was determined using the simplified method for estimating expected option life, which qualify as "plain-vanilla" options. The risk-free interest rate is based on the rate of a zero-coupon U.S. Treasury instrument with a remaining term approximately equal to the expected term. We do not expect to pay dividends in the near term and therefore do not incorporate the dividend yield as part of our assumptions.

Restricted Stock Awards and Units

Restricted stock awards have been issued to members of our board of directors and restricted stock units have been issued to certain employees. For restricted stock awards, the actual common shares have been issued with voting rights and are included as part of our total common shares outstanding. The common shares may not be sold or exchanged until the vesting period is completed. For restricted stock units, no common shares are issued until the vesting period is completed. For restricted stock units, the Company allows its employees to withhold a portion of their units upon the vesting dates in order to satisfy their tax obligation. For both restricted stock awards and units, fair value is determined by the market value of our common stock on the date of the grant.

During fiscal 2015, we established a plan to issue our directors awards of fully vested common stock in lieu of restricted stock awards. During fiscal 2020 and fiscal 2019, we issued 26,608 and 20,064 fully vested common shares which had a total fair value of $660 and $454 based on the closing price of our common stock on the date of issuance, respectively. As of March 31, 2020, there were no outstanding restricted stock awards.

The following table summarizes the activity with regard to unvested restricted stock units issued to employees during fiscal 2020, fiscal 2019, and fiscal 2018.

	Restricted Stock Units		Number of Shares			Weighted Average Grant Fair Value
Balance of unvested units at March 31, 2017			208,146			$	20.64
	Granted		119,302			19.16
	Released		(88,084	)		21.51
	Forfeited		(10,252	)		20.05
Balance of unvested units at March 31, 2018			229,112			$	19.55
	Granted		115,378			23.44
	Released		(101,874	)		19.93
	Forfeited		(5,591	)		19.98
Balance of unvested units at March 31, 2019			237,025			$	21.26
	Granted		122,747			22.17
	Released		(117,216	)		20.39
	Forfeited		(5,850	)		21.81
Balance of unvested units at March 31, 2020			236,706			$	22.14

Based on our closing stock price of $15.07, the aggregate intrinsic value of the unvested restricted stock units at March 31, 2020 was $3,567. Total unrecognized expense related to unvested restricted stock awards was approximately $3,208 as of March 31, 2020. We anticipate this expense to be recognized over a weighted average period of approximately 1.52 years.

Performance Stock Units. During fiscal 2020, fiscal 2019 and fiscal 2018, performance stock unit awards were issued to our executive officers and other members of management and had total estimated grant date fair values of $2,285, $1,654 and $1,420, respectively. For the fiscal 2020 awards, the performance indicator for these awards is a combination of stock price and the Company's Adjusted EBITDA over a three year period. The target number of shares is 30,075 and 62,319 for the stock price awards and Adjusted EBITDA awards, respectively. The stock price indicator measures our stock price compared to a pre-determined peer group of companies with similar business characteristics as ours. Since the stock price indicator is market based, we prepared a Monte Carlo valuation model to calculate the probable outcome of the market for our stock to arrive at the fair value. The fair value of the market based units will be expensed over three years, whether or not the market condition is met. The Adjusted EBITDA indicator establishes target for the combined total of Adjusted EBITDA for the three years ending March 31, 2022. Since this is a performance based stock award, the Company will make estimates of periodic expense until the Adjusted EBITDA target is known and the expense for actual number of shares earned is determinable.

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During fiscal 2020 and 2019, performance stock awards that were scheduled to vest did not meet the minimum market based indicator. Accordingly 5,153 and 14,660 of previously outstanding performance stock units were forfeited during fiscal 2020 and fiscal 2019, respectively. Fiscal 2020 performance stock award forfeitures will be transacted during the first quarter of the fiscal year ending March 31, 2021. During fiscal 2018, there were no performance stock unit forfeitures. For performance stock units, the performance period will end on the third fiscal year end subsequent to the award being granted. It will then be determined how many shares of stock will be issued. In each year of the performance period, the possible number of shares will range from zero percent to two hundred percent of the target shares.

The following table summarized the target number of performance stock units outstanding and the minimum and maximum number of shares that can be earned as of March 31, 2020.     

Fiscal Year Granted	Target		Minimum			Maximum
Fiscal 2018	73,684		—			147,368
Fiscal 2019	68,178		—			131,050
Fiscal 2020	92,394		—			184,788

In fiscal 2018, there were no performance awards earned or released. In fiscal 2020 and 2019, the performance objectives for 79,144 and 36,611 awards, respectively, were earned.

At March 31, 2020, there was $2,101 in stock compensation that remained to be expensed, which will be recognized over a period of 2.08 years.

Other expense consisted of the following:

		Year Ended March 31, 2020				Year Ended March 31, 2019				Year Ended March 31, 2018
Foreign currency transaction gain/(expense)		$	(143	)		$	353			$	(5,629	)
Loss on foreign exchange forwards		(437		)		(125		)		(96		)
Gain (loss) on investments from deferred compensation plan		(498		)		(50		)		49
Other income/(expense)		(480		)		(69		)		81
		$	(1,558	)		$	109			$	(5,595	)

    

Income taxes included in the consolidated income statement consisted of the following:

			Year Ended March 31, 2020				Year Ended March 31, 2019				Year Ended March 31, 2018
Current provision:
	Federal provision		$	(759	)		$	3,507			$	3,937
	Foreign provision		9,359				11,951				12,768
	State provision		279				681				301
Deferred provision:
	Federal deferred benefit		(796		)		(2,083		)		(8,506		)
	Foreign deferred benefit		(2,895		)		(3,964		)		(3,178		)
	State deferred benefit		(46		)		(119		)		(152		)
Total provision for income taxes			$	5,142			$	9,973			$	5,170

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Deferred income tax assets and liabilities were as follows:

			March 31,
			2020				2019
Deferred tax assets:
	Accrued liabilities and reserves		$	2,915			$	2,489
	Stock option compensation		896				1,072
	Foreign deferred benefits		2,119				2,915
	Net operating loss carry-forward		1,545				1,440
	Inventories		377				385
	Interest limitation		—				359
	Capitalized transaction costs		149				178
	Foreign tax credit carry forward		458				149
	Valuation allowance		(757		)		(605		)
Total deferred tax assets			$	7,702			$	8,382
Deferred tax liabilities:
Intangible assets			$	(6,334	)		$	(7,847	)
Intangible and other - foreign			(16,189		)		(20,980		)
Property, plant and equipment			(4,004		)		(3,245		)
Prepaid expenses			(154		)		(39		)
Unrealized loss on hedge			(42		)		—
Undistributed foreign earnings			(320		)		(581		)
Total deferred tax liabilities			$	(27,043	)		$	(32,692	)
Net deferred tax asset (liability)			$	(19,341	)		$	(24,310	)

The Company expects that it is more likely than not that the results of future operations will generate sufficient taxable income to realize its domestic and foreign deferred tax assets net of valuation allowance reserves.

The U.S. and non-U.S. components of income (loss) from continuing operations before income taxes were as follows:

			Year Ended March 31, 2020				Year Ended March 31, 2019				Year Ended March 31, 2018
U.S.			$	(8,603	)		$	44			$	(13,568	)
Non-U.S.			25,681				33,098				31,957
Income from continuing operations			$	17,078			$	33,142			$	18,389

The difference between the provision for income taxes and the amount that would result from applying the U.S. statutory tax rate to income before provision for income taxes is as follows:

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				Year Ended March 31, 2020				Year Ended March 31, 2019				Year Ended March 31, 2018
Notional U.S. federal income tax expense at statutory rate				$	3,586			$	6,960			$	5,792
Adjustments to reconcile to the income tax provision:
	Rate difference-international subsidiaries			1,181				1,366				(1,769		)
Transition tax for United States tax reform				—				(1,118		)		5,125
	Impact on deferred tax liability for statutory rate change			(1,231		)		—				(5,849		)
Impact of U.S. global intangible tax				926				946				—
	Undistributed foreign earnings			259				313				1,786
U.S. state income tax provision, net				143				408				111
	Charges/(benefits) related to uncertain tax positions			(408		)		1,137				(533		)
	Non-deductible charges			349				517				758
	Change in valuation allowance			152				(280		)		219
	Other, net			185				(276		)		(470		)
Provision for income taxes				$	5,142			$	9,973			$	5,170

    

On December 22, 2017, the United States enacted significant changes to U.S. tax law following the passage and signing of H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (the “Tax Act”) (previously known as “The Tax Cuts and Jobs Act”).  The Tax Act included significant changes to existing tax law, including a permanent reduction to the U.S. federal corporate income tax rate from 35% to 21%, a one-time repatriation tax on deferred foreign income (“Transition Tax”), deductions, credits and business-related exclusions. 

Consistent with provisions allowed under the Tax Act, the net $4,007 calculated Transition Tax liability will be paid over an eight year period beginning in fiscal year 2019. At March 31, 2020, $2,770 of the Transition Tax liability is included in “Other liabilities- long term” in the consolidated balance sheets.  

The net benefit of $3,737 related to deferred tax assets and liabilities is primarily associated with a reduction in deferred liabilities for unamortized intangible assets. Since these intangible assets are not tax deductible, the reduction of the liability is non-cash and will not reduce future tax payments.

Given the Tax Act’s significant changes and the opportunities to repatriate cash tax free, we have reevaluated our current permanent reinvestment position. Accordingly, we no longer assert a permanent reinvestment position in most of our foreign subsidiaries. We expect to repatriate certain earnings which will be subject to withholding taxes.  At March 31, 2020 we have accrued $1,200 as an additional deferred tax liability associated with the future repatriation of earnings from jurisdictions that withhold taxes on foreign paid dividends.  

While the Tax Act provides for a modified territorial tax system, beginning in January 1, 2018, global intangible low-taxed income, or ("GILTI"), provisions will be applied by the United States providing an incremental tax on certain foreign income. The GILTI provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary's tangible assets. Under GAAP, the Company is allowed to make an accounting policy choice of either (1) treating taxes due on the future U.S. inclusions in taxable income related to GILTI provisions as a current-period expense when incurred, or the period cost method, or (2) factoring such amounts into the Company's measurement of its deferred taxes, or the deferred method. The Company has selected the period cost method as its accounting policy with respect to the new GILTI tax rules.

To provide relief for taxpayers impacted by the Covid-19 outbreak, the United States enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020. Among other provisions, the law provides relief to U.S. federal corporate taxpayers through temporary adjustments to net operating loss rules, changes to interest expense deductibility, and enhanced qualified improvement property depreciation. Under ASC 740, the Company recognized the effect of the change in tax law on existing deferred tax assets and liabilities in income from continuing operations in the interim period that includes March 27, 2020.

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The primary impact to the Company for Cares was our ability to fully deduct interest expense for the twelve months ended March 31, 2020.

As of March 31, 2020, the Company had foreign tax net operating loss carry-forwards ("NOLs") of $5,367. Of this amount, $3,873 may be carried forward indefinitely. As of March 31, 2020, the tax years 2015 through 2018 remain open to examination by the major taxing jurisdictions to which we are subject.

During the fiscal year ended March 31, 2019, the Company reserved $674 related to uncertain tax positions related to the final Transition Tax and $463 related to current tax elections that we determined could be overturned if the calculations were examined by tax authorities. The reserves for the Transition Tax will remain subject to examination until January 2025. The reserves for other tax elections are expected to be released within twelve months. During the fiscal year ended March 31, 2018, the Company released its remaining reserve for uncertain tax positions as the tax periods to which they relate had closed. Activity within our reserve for uncertain tax positions as well as the penalties and interest are recorded as a component of the Company's income tax expense. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

			Year Ended March 31, 2020				Year Ended March 31, 2019
Beginning balance			$	1,137			$	—
Additions for tax positions of prior years			—				1,137
Release of reserve			(463		)		—
Interest and penalties on prior reserves			55				—
Reserve for uncertain income taxes			$	729			$	1,137

We operate in four reportable segments based on four geographic countries or regions in which we operate: (i) United States and Latin America ("US-LAM"), (ii) Canada, (iii) Europe, Middle East and Africa ("EMEA") and (iv) Asia-Pacific ("APAC"). Within our four reportable segments, our core products and services are focused on thermal solutions primarily related to the electrical heat tracing industry. Each of our reportable segments serves a similar class of customers, including engineering, procurement and construction companies, international and regional oil and gas companies, commercial sub-contractors, electrical component distributors and direct sales to existing plant or industrial applications. Profitability within our segments is measured by operating income. Profitability can vary in each of our reportable segments based on the competitive environment within the region, the level of corporate overhead, such as the salaries of our senior executives, and the level of research and development and marketing activities in the region, as well as the mix of products and services. Since March 2015, we acquired TPS, Unitemp, IPI and THS. THS develops and produces advanced industrial heating and filtration solutions for industrial and hazardous area applications that closely align with Thermon's core business and serves similar end markets in North America. As such, we have elected to report THS's operations through our US-LAM and Canada reportable segments. Both Unitemp and IPI offer thermal solutions and have been included in our EMEA and US-LAM reportable segments, respectively. TPS provides temporary power products that differ from our core thermal solutions business. As operating results from TPS comprises less than 10% of our total sales and operating income, TPS has been aggregated in our Canada segment. For purposes of this note, revenue is attributed to individual countries or regions on the basis of the physical location and jurisdiction of organization of the subsidiary that invoices the material and services.

Total sales to external customers, inter-segment sales, depreciation expense, amortization expense, income from operations and total assets classified by major geographic area in which the Company operates are as follows:

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		Year Ended March 31, 2020				Year Ended March 31, 2019				Year Ended March 31, 2018
Sales to External Customers:
United States and Latin America		$	155,465			$	165,648			$	114,548
Canada		128,364				127,392				94,427
Europe, Middle East and Africa		53,762				77,508				68,352
Asia-Pacific		45,895				42,094				31,282
		$	383,486			$	412,642			$	308,609
Inter-segment Sales:
United States and Latin America		$	48,891			$	52,662			$	50,155
Canada		4,764				6,231				7,294
Europe, Middle East and Africa		2,890				3,406				1,614
Asia-Pacific		991				859				1,668
		$	57,536			$	63,158			$	60,731
Depreciation Expense:
United States and Latin America		$	6,304			$	4,935			$	4,326
Canada		3,462				3,616				3,019
Europe, Middle East and Africa		551				466				476
Asia-Pacific		185				177				141
		$	10,502			$	9,194			$	7,962
Amortization of Intangibles:
United States and Latin America		$	5,752			$	5,841			$	6,018
Canada		9,665				12,515				7,979
Europe, Middle East and Africa		1,292				1,351				1,398
Asia-Pacific		1,064				1,064				1,063
		$	17,773			$	20,771			$	16,458
Income from Operations:
United States and Latin America		$	6,346			$	16,421			$	484
Canada		24,946				20,601				26,198
Europe, Middle East and Africa		1,196				11,295				6,842
Asia-Pacific		6,628				5,847				4,111
Unallocated:
Public company costs		(1,493		)		(1,507		)		(1,378		)
Stock compensation		(4,960		)		(4,148		)		(3,519		)
		$	32,663			$	48,509			$	32,738
		March 31, 2020				March 31, 2019
Fixed Assets:
United States and Latin America		$	39,815			$	40,691
Canada		28,703				30,045
Europe, Middle East and Africa		3,246				3,497
Asia-Pacific		778				722
		$	72,542			$	74,955
Total Assets:
United States and Latin America		$	239,751			$	230,149
Canada		270,055				298,233
Europe, Middle East and Africa		73,334				84,214
Asia-Pacific		37,765				43,166
		$	620,905			$	655,762

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At March 31, 2020 and 2019, non-current deferred tax assets of $4,795 and $4,483 respectively, were applicable to the United States.

Capital expenditures by geographic area were as follows:

		Year Ended March 31, 2020				Year Ended March 31, 2019				Year Ended March 31, 2018
Capital Expenditures:
United States and Latin America		$	5,607			$	8,432			$	4,257
Canada		4,221				2,753				5,295
Europe, Middle East and Africa		654				612				118
Asia-Pacific		373				239				338
		$	10,855			$	12,036			$	10,008

The following quarterly results have been derived from unaudited consolidated financial statements that, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of such quarterly information. The operating results for any quarter are not necessarily indicative of the results to be expected for any future period. The unaudited quarterly financial data for each of the eight quarters in the two years ended March 31, 2020 are as follows:

		Three Months Ended
		March 31, 2020				December 31, 2019				September 30, 2019				June 30, 2019
Sales		$	88,371			$	100,468			$	102,935			$	91,712
Gross profit		35,584				43,480				45,432				37,142
Income from operations		2,365				12,466				12,841				4,991
Net income (loss) available to Thermon Group Holdings, Inc.		$	(2,968	)		$	6,522			$	6,913			$	1,471
Net income (loss) per common share
Basic		$	(0.09	)		$	0.20			$	0.21			$	0.05
Diluted		(0.09		)		0.20				0.21				0.04

		Three Months Ended
		March 31, 2019				December 31, 2018				September 30, 2018				June 30, 2018
Sales		$	114,230			$	119,356			$	90,154			$	88,902
Gross profit		44,969				50,883				40,359				39,729
Income from operations		13,710				17,887				8,672				8,240
Net income available to Thermon Group Holdings, Inc.		$	6,768			$	9,719			$	3,227			$	3,042
Net income per common share
Basic		$	0.21			$	0.30			$	0.10			$	0.09
Diluted		0.20				0.29				0.10				0.09

The basic and diluted income per common share for each respective three month period is calculated independently. Therefore, the sum of the periods does not necessarily total the full year net income or loss per common share.

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In April 2020, as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of current macroeconomic uncertainty resulting from the COVID-19 pandemic, the Company made several draws on its senior secured revolving credit facility resulting in a total of $41,379 (including $3,988 in lines of credit) in outstanding borrowings as of April 30, 2020. The proceeds will be available to be used for working capital, general corporate or other purposes. The maturity date of the loans under the senior secured revolving credit facility is October 28, 2022. After the draw, the Company maintains approximately $18,621 of additional borrowing capacity (subject to the borrowing base) under the senior secured revolving credit facility. As of April 30, 2020, the current interest rate for borrowings under the senior secured revolving credit facility is approximately 2.9%.

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(1)	Excludes securities reflected in the column entitled "Number of securities to be issued upon exercise of outstanding equity awards."

(2)	On April 8, 2011, our board of directors and pre-IPO stockholders approved the Thermon Group Holdings, Inc. 2011 Long-Term Incentive Plan ("2011 LTIP"). The 2011 LTIP authorized the issuance of 2,893,341 equity awards.

(3)

At March 31, 2020, the Company had outstanding under the LTIP: (i) 79,483 stock options, with a weighted average exercise price of $17.31, (ii) 236,706 unvested restricted stock units, with a weighted average grant date fair value of $22.14, and (iii) 234,256 performance units (assuming satisfaction of the performance metric at target and 468,512 at maximum), with a weighted average grant date fair value of $22.87.

(4)

The 2010 Thermon Group Holdings, Inc. Restricted Stock and Stock Option Plans (the "2010 Plan") was approved by our board of directors on July 28, 2010. The 2010 Plan authorized the issuance of 2,767,171 equity awards and provides for the grant of non-qualified stock options and restricted stock. In connection with our May 2011 IPO, all 2,757,524 of the unvested stock options that were then outstanding under the 2010 Plan became fully vested and exercisable. The 2010 Plan will terminate as of the earlier of (i) the date on which all equity awards under the 2010 Plan have been issued, (ii) the termination of the 2010 Plan by our board of directors, or (iii) the tenth anniversary of the effective date of the 2010 Plan; however, no further grants or equity awards will be made under the 2010 Plan. Under the 2010 Plan, the compensation committee of our board of directors has the authority to designate participants in the plan, determine the form of awards, the number of shares subject to individual awards, and the terms and conditions, including the vesting schedule, of each award granted under the 2010 Plan. The term of any option shall be fixed by the compensation committee and shall not exceed ten years from the date of grant. At March 31, 2020, the Company had outstanding under the 2010 Plan 60,002 non-qualified stock options, with a weighted average exercise price of $5.68.

(5)

At March 31, 2020, the Company had outstanding under the LTIP: (i) 79,483 stock options, with a weighted average exercise price of $17.31, (ii) 236,706 unvested restricted stock units, with a weighted average grant date fair value of $22.14, and (iii) 234,256 performance units (assuming satisfaction of the performance metric at target and 468,512 at maximum), with a weighted average grant date fair value of $22.87. At March 31, 2020, the Company had outstanding under the 2010 Plan 60,002 non-qualified stock options, with a weighted average exercise price of $5.68.

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1.	Financial Statements: Included herein at pages 49 through 82

2.	Financial Statement Schedules: None. Financial statement schedules have been omitted because the required information is included in our consolidated financial statements contained elsewhere in this annual report.

3.	Exhibits: See the Exhibit Index below. Each management contract and compensatory plan or arrangement required to be filed as an exhibit to this annual report is identified in the Exhibit Index by a single asterisk following its exhibit number.

•	should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

•	have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in such agreement;

•	may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and

•	were made only as of the date of the applicable agreement or such other date or dates as may be specified in such agreement and are subject to more recent developments.

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