Thermon Group Holdings, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Mar. 31, 2016

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



		Year Ended March 31, 2016			Year Ended March 31, 2015			Year Ended March 31, 2014
Current provision:
	Federal provision (benefit)	$	4,185		$	8,402		$	(1,594	)
	Foreign provision	8,503			13,160			12,451
	State provision	311			324			484
Deferred provision:
	Federal deferred benefit	(1,964		)	(5,063		)	(2,515		)
	Foreign deferred benefit	(2,263		)	(3,498		)	(1,790		)
	State deferred benefit	(56		)	(149		)	(72		)
Total provision for income taxes		$	8,716		$	13,176		$	6,964

Deferred income tax assets and liabilities were as follows:



		March 31,
		2016			2015
Deferred tax assets:

	Accrued liabilities and reserves	$	1,607		$	2,877
	Stock option compensation	1,166			831
	Foreign deferred benefits	788			425
	Net operating loss carry-forward	614			683
	Inventories	529			519
	Capitalized transaction costs	531			601
	Interest rate swap included in Other Comprehensive Loss	444			261
	Foreign tax credit carry forward	52			57
	Unrealized gain on hedge	7			8
	Valuation allowance	(169		)	(48		)
	Other	24			91
Total deferred tax assets		5,593			6,305
Deferred tax liabilities:
Intangible assets		(22,189		)	(19,916		)
Intangible assets - foreign		(7,787		)	(10,528		)
Property, plant and equipment		(3,208		)	(2,976		)
Prepaid expenses		(47		)	(50		)
Undistributed foreign earnings		—			(121		)
Total deferred tax liabilities		(33,231		)	(33,591		)

Net deferred tax asset (liability)		$	(27,638	)	$	(27,286	)

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



	Year Ended March 31, 2016		Year Ended March 31, 2015		Year Ended March 31, 2014
U.S.	$	13,043	$	22,493	$	(6,315	)
Non-U.S.	19,323		40,069		39,078
Income from continuing operations	$	32,366	$	62,562	$	32,763

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:



		Year Ended March 31, 2016			Year Ended March 31, 2015			Year Ended March 31, 2014
Notional U.S. federal income tax expense at statutory rate		$	11,328		$	21,980		$	11,467
Adjustments to reconcile to the income tax provision:
U.S. state income tax provision, net		150			66			243
	Undistributed foreign earnings	—			(3,105		)	—
	Rate difference-international subsidiaries	(1,727		)	(4,113		)	(3,409		)
	Charges/(benefits) related to uncertain tax positions	(1,227		)	61			(797		)
	Release of valuation allowance for foreign net operating loss carry forward	—			(634		)	—
	Impact on deferred tax liability for statutory rate change	455			—			—
	Effect of permanent tax differences, net	51			(846		)	179
	Release of tax liability from Predecessor owners	—			—			(575		)
	Other, net	(314		)	(233		)	(144		)
Provision for income taxes		$	8,716		$	13,176		$	6,964

As of March 31, 2015, the Company had a foreign tax net operating loss carry-forward ("NOL") of $2,142 that does not expire. During the year ended March 31, 2015, the Company made an operational change in the jurisdiction that has the NOL and determined that it could be utilized in future periods. The valuation reserve previously recorded on the associated deferred tax asset was released and the Company recorded a tax benefit of $634.

We have adopted a permanent reinvestment position whereby we expect to reinvest our foreign earnings for most of our foreign subsidiaries and do not expect to repatriate future earnings. As a result of this policy, we will not accrue a tax liability in anticipation of future dividends from our significant foreign subsidiaries. The estimated annual effective tax rate for the fiscal year ended March 31, 2016 reflects the estimated taxable earnings of our various foreign subsidiaries and the applicable local tax rates and after accounting for certain permanent differences, such as nondeductible compensation expenses. During the year ended March 31, 2015, the Company released a net deferred tax liability of $3,105 for taxes accrued on previously undistributed foreign earnings that are no longer expected to be repatriated.

Since we have established a permanent reinvestment policy on foreign earnings, we have not established a deferred tax liability for the U.S. tax associated with potential repatriation of foreign earnings. At March 31, 2016, we had not provided for U.S. federal income taxes and foreign withholding taxes on approximately $123,150 of available earnings in our significant foreign subsidiaries that are expected to be indefinitely invested. Future tax law changes or changes in the needs of our foreign subsidiaries could cause us to reconsider our policy and repatriate such earnings to the U.S. in the form of dividends. Any such dividends would be limited to the actual cash or assets available at our foreign subsidiaries, which are also subject to foreign currency fluctuations. Upon repatriation, the U.S. tax liability would be reduced by any foreign taxes already paid. We estimate that the ultimate tax liability for the repatriation of our foreign earnings would be in the range of $11,000 to $13,000.

For the year ended March 31, 2014, the United States entities generated a net operating loss as result of the premiums paid and other costs related to the refinancing of the senior secured notes. The benefit of the net operating loss carry forward was fully utilized by our United States operations during the year ended March 31, 2015. During the year ended March 31, 2015, we received a refund from the United States Internal Revenue Service of $3,220 which relates to net operating losses that were previously carried back to our fiscal 2012 tax year.

As of March 31, 2016, the tax years 2012 through 2015 remain open to examination by the major taxing jurisdictions to which we are subject.

As of March 31, 2016, we have established a reserve for uncertain income taxes in the amount of $661, all of which is related to our IPI acquisition. During the fiscal year ended March 31, 2016, we reduced our liabilities for uncertain tax positions in the amount of $1,281 as a portion of our uncertain tax positions related to periods which are no longer subject to audit. 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, 2016			Year Ended March 31, 2015
Beginning balance	$	748		$	854
Additions from acquisitions based on tax positions related to prior years	1,119			—
Reductions for tax positions of prior years	(1,281		)	—
Settlements	—			(167		)
Interest and penalties on prior reserves	75			61
Reserve for uncertain income taxes	$	661		$	748

We expect that $169 of our liability for uncertain tax positions will be released during fiscal 2017 as the periods to which they relate will close.