11. Commitments and Contingencies

At March 31, 2012, the Company had in place letter of credit guarantees and performance bonds securing performance obligations of the Company. These arrangements totaled approximately $7,462.  Of this amount, $2,398 is secured by cash deposits at the Company’s financial institutions.  The remaining $5,604 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, 2012 and March 31, 2011, was approximately $2,398 and $2,133, respectively, of cash deposits pledged as collateral on performance bonds and letters of credit

The Company leases various property and equipment under operating leases. Lease expense was approximately $2,021, $1,712, $156 and  $1,697 in fiscal year 2012, the period ended May 1, 2010 to March 31, 2011, the period from April 1 to April 30, 2010, and fiscal year 2010, respectively. Future minimum annual lease payments under these leases are as follows for the years ended March 31:

The Company has entered into information technology service agreements with several vendors. The service fees expense amounted to $1,026, $1,010, $92 and $1,114 in fiscal year 2012, the period from May 1, 2010 to March 31, 2011, the period from April 1 to April 30, 2010, fiscal years 2010 and 2009, respectively. The future annual service fees under the service agreements are as follows for the fiscal years ended March 31:

In the ordinary course of conducting its business, the Company becomes involved in various lawsuits and administrative proceedings. Some of these proceedings may result in fines, penalties, or judgment being assessed against the Company, which, from time to time, may have an impact on earnings. We do not currently expect any of the following proceedings will have a material adverse effect on the Company’s operations or financial position.  We cannot, however, provide any assurances that we will prevail in any of these matters.

Asbestos Litigation—Since 1999, we have been named as one of many defendants in 16 personal injury suits alleging exposure to asbestos from our products. None of the cases alleges premises liability. Two cases are currently pending. Insurers are defending us in one of the two lawsuits, and we expect that an insurer will defend us in the remaining matter. Of the concluded suits, there were seven cost of defense settlements and the remainder were dismissed without payment. There are no claims unrelated to asbestos exposure for which coverage has been sought under the policies that are providing coverage.

Indian Sales Tax and Customs Disputes—Our Indian subsidiary is currently disputing assessments of administrative sales tax and customs duties with Indian tax and customs authorities. In addition, we currently have a customs duty case before the Supreme Court in India, on appeal by custom authorities. During the year ended March 31, 2012, we concluded settlement of some of these matters whereby Thermon paid approximately $88.  We have reserved $287 in estimated settlement of the remaining matters.

Notice of Tax Dispute with the Canada Revenue Agency—On June 13, 2011, we received notice from the Canada Revenue Agency (“Agency”) advising us that they disagree with the tax treatment we proposed with respect to certain asset transfers that were completed in August 2007 by our Predecessor owners.  As a result, the Agency proposes to disallow the interest deductions taken in Canada for tax years 2008, 2009 and 2010.  In total these interest deductions amounted to $11.6 million.  The statutory tax rate in Canada is approximately 25%, accordingly, the Agency has accessed an assessment of approximately $2.9 million.  At March 31, 2012, we have not recorded a tax liability reserve due for this matter with the Agency as a loss is not probable or estimable.  While we will vigorously contest this ruling, we expect that any liability, if any, will be covered under an indemnity agreement with the Predecessor owners.

Building Construction Accident—On July 27, 2011, during construction of the expansion of our manufacturing facility in San Marcos, Texas, a section of the partially completed steel framework collapsed.  One employee of the construction subcontractor was killed and another was injured during the incident.  There were no Thermon employees on the construction site at the time of the incident.  We understand that both the general contractor and the steel erection subcontractor were issued citations by OSHA and have been sued in private actions brought by the decedent’s estate as a result of the accident.  The Company has not been fined or named in any lawsuits related to this matter and does not anticipate incurring any significant losses with respect to this matter that would not be covered by insurance.

Changes in the Company’s product liability are as follows:

Management Employment Contracts—Our four senior executive officers are subject to employment contracts that provide for benefits under various circumstances of termination which include continued payment of their salary for up to twelve months.  As a group, the combined possible salary payment would be $1,000 if they were terminated simultaneously under circumstances such as a change of control.