Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.8
Income Taxes
 12 Months Ended
Mar. 31, 2014
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes

Income taxes included in the consolidated income statement consisted of the following
 
 
 
Year Ended March 31, 2014
 
Year Ended March 31, 2013
 
Year Ended March 31, 2012
Current provision:
 
 
 
 
 
 
 
Federal provision (benefit)
 
$
(1,594
)
 
$
3,835

 
$
(1,072
)
 
Foreign provision
 
12,451

 
12,352

 
12,551

 
State provision
 
484

 
422

 
356

Deferred provision:
 
 
 
 
 
 
 
Federal deferred benefit
 
(2,515
)
 
(376
)
 
(1,424
)
 
Foreign deferred benefit
 
(1,790
)
 
(1,646
)
 
(2,788
)
 
State deferred benefit
 
(72
)
 
(11
)
 
(155
)
Total provision for income taxes
 
$
6,964

 
$
14,576

 
$
7,468



Deferred income tax assets and liabilities were as follows:
 
 
 
March 31,
 
 
 
2014
 
2013
Deferred tax assets:
 
 
 
 
Current
 
 
 
 
 
Accrued liabilities and reserves
 
$
1,934

 
$
1,891

 
Unrealized gain on hedge
 
39

 
11

 
Inventories
 
399

 
433

Total current deferred tax assets
 
2,372

 
2,335

 
 
 
 
 
 
Non-current
 
 
 
 
 
Foreign tax credit carry forward
 
1,722

 
1,159

 
Capitalized transaction costs
 
670

 
740

 
Stock option compensation
 
796

 
963

 
Other
 
133

 
18

Total non-current deferred tax assets
 
3,321

 
2,880

 
 
 
 
 
 
Deferred tax liabilities:
 
 
 
 
Current
 
 
 
 
Prepaid expenses
 
(47
)
 
(124
)
Total current deferred tax liabilities
 
(47
)
 
(124
)
Non-current
 
 
 
 
Intangible assets
 
(35,088
)
 
(38,783
)
Property, plant and equipment
 
(2,988
)
 
(3,011
)
Undistributed foreign earnings
 
(3,141
)
 
(3,685
)
Total non-current tax liabilities
 
(41,217
)
 
(45,479
)
 
 
 
 
 
 
Net current deferred tax asset
 
$
2,325

 
$
2,211

Net non-current deferred tax liability
 
$
(37,896
)
 
$
(42,599
)


As of March 31, 2014, the Company had foreign tax credit carryforwards of $1,722. These carryforwards expire in fiscal 2023. Recognition of these credit carryforwards is subject to an annual limit, which may cause them to expire before they are used.

The U.S. and non-U.S. components of income (loss) from continuing operations before income taxes were as follows:
 
 
 
Year Ended March 31, 2014
 
Year Ended March 31, 2013
 
Year Ended March 31, 2012
U.S.
 
 
$
(6,315
)
 
$
4,951

 
$
(14,480
)
Non-U.S.
 
 
39,078

 
36,599

 
33,978

Income from continuing operations
 
$
32,763

 
$
41,550

 
$
19,498






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, 2014
 
Year Ended March 31, 2013
 
Year Ended March 31, 2012
Notional U.S. federal income tax expense at statutory rate
 
$
11,467

 
$
14,543

 
$
6,825

Adjustments to reconcile to the income tax provision:
 
 
 
 
 
 
U.S. state income tax provision, net
 
243

 
263

 
77

 
Undistributed foreign earnings
 
—

 
44

 
1,728

 
Effects on Canadian debt facility
 
—

 
—

 
—

 
Rate difference-international subsidiaries
 
(3,409
)
 
(270
)
 
(1,974
)
 
Nondeductible expenses
 
179

 
115

 
774

 
Charges/(benefits) related to uncertain tax positions
 
(797
)
 
143

 
211

 
Release of tax liability from Predecessor owners
 
(575
)
 
—

 
—

 
Other
 
(144
)
 
(262
)
 
(173
)
Provision for income taxes
 
$
6,964

 
$
14,576

 
$
7,468


During the year ended March 31, 2014, 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 change, we will no longer 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, 2014 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. The deferred tax liability recorded on the U.S. financial statements that was previously recorded on prior foreign earnings is subject to fluctuations in the U.S. dollar/foreign currency exchange rate each year. The translation effect to our deferred tax liability is included as part of the “Foreign currency translation adjustment” within “Other comprehensive income” and was a $525 and $52 increase to other comprehensive income for the years ended March 31, 2014 and March 31, 2013, respectively and a $287 reduction for the year ended March 31, 2012.
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. As previous tax periods that remain open do not have available taxable income to apply this loss, it can only be carried forward. The net operating loss may be carried forward to tax periods until the fiscal year ending March 31, 2034. Without the debt refinancing costs during the year ended March 31, 2014, the United States entities would have generated taxable income in fiscal 2014 and we expect that the Company will generate taxable income in the U.S. in the fiscal year ending March 31, 2015. Accordingly, we recognized the tax benefit of this loss in the fiscal year ended March 31, 2014 and have not applied a valuation allowance.

In connection with the Audax Transaction in 2007, the Predecessor obtained financing in Canada, which was repaid through the CHS Transactions. In completing the Audax Transaction, the stock of Thermon Canada, a subsidiary of Thermon Manufacturing Company (“TMC”), was distributed to Thermon Holding Corp. (“THC”). This caused TMC to realize a gain on the difference between its tax basis in Thermon Canada and the fair market value of Thermon Canada's stock under Section 311(b) of the Internal Revenue Code; however, the gain was deferred under the consolidated return rules and created a “deferred intercompany gain.” This deferred gain is a tax attribute that is not reflected on the financial statements of the Company since it is avoidable.

As of March 31, 2014, the tax years 2011 through 2014 remain open to examination by the major taxing jurisdictions to which we are subject with the exception of Canada as discussed below. The Company’s U.S. federal income tax return is under exam for the tax year ended March 31, 2011. The Company’s Canadian federal income tax returns are under exam for the Predecessor’s tax years ended March 31, 2008, 2009 and 2010. See Note 12, “Commitments and Contingencies.”

A liability for uncertain tax positions of $167 was recorded during the year ended March 31, 2014 which relates to an ongoing Russian tax audit. See Note 12, “Commitments and Contingencies.” During the year ended March 31, 2014, we concluded an income tax audit with the United States Internal Revenue Service. As a result, we released reserves for uncertain tax positions taken on the periods under examination and recorded a related tax benefit of $944. Additionally, $60 of interest and penalties were accrued on previously established reserves. 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, 2014
 
Year Ended March 31, 2013
Beginning balance
 
$
1,651

 
$
1,509

Additions based on tax positions related to the current year
 
167

 
—

Reductions for tax positions of prior years
 
(944
)
 
—

Settlements
 
(80
)
 
—

Interest and penalties on prior reserves
 
60

 
142

Reserve for uncertain income taxes
 
$
854

 
$
1,651


With the conclusion of an audit with the United States Internal Revenue Service, we received a refund of $2,004. This amount related to tax periods associated with our Predecessor owners and was therefore payable as part of "Obligations due to settle the CHS Transactions", see Note 10. Related-Party Transactions. The payment of this refund represented the final transaction tax benefit due to the Predecessor owners. Accordingly, we released $575 of additional estimated tax benefits as a reduction of tax expense that we determined would not be realized and are no longer payable.